SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934
                   For the fiscal year ended December 31, 1997

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934


                          Commission file number 1-7037

                           ENVIRONMENT ONE CORPORATION
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)

         NEW YORK                                        14-1505298
--------------------------------------------------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation of organization)

2773 Balltown Road, Niskayuna, New York                12309-1090
--------------------------------------------------------------------------------
(Address of principal executive offices)                (Zip Code)

                    Issuer's telephone number (518) 346-6161

Securities registered under Section 12(b) of the Exchange Act:         None

Securities registered under Section 12(g) of the Exchange Act:
                               Title of each class
                           Common Stock $.10 par value

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to filing requirements for the past 90 days.
Yes      [ X ]    No       [   ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosures will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [   ]

Revenue for the year ended December 31, 1997:        $24,330,721

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of January 30, 1998: $36,326,438

The number of shares of Common Stock,  par value $.10  outstanding as of January
30, 1998: 4,295,827

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                     Part I

Item 1.  Business

The Environment One Corporation  (EONE) is an  environment-oriented  product and
service company which started  operations in January 1969. The Company  operates
in two business  segments:  (A) Sewer Systems Business and (B) Detection Systems
Business. In January,  1996, the Company sold its Cirrus Incipient Fire Detector
(IFD) product line to PROTEC Fire Detection, plc of Nelson, Lancashire, England.
Information  regarding  this  sale is set  forth  below  in Item 6.  Information
regarding  the  percentages  of total  sales  attributable  to the two  business
segments for the past two fiscal years is set forth below in Item 6.


                          Potential Change of Control

On February 24, 1998 the Company  entered  into an Agreement  and Plan of Merger
(the "Merger Agreement") among the Company,  Precision Castparts Corp. (PCC), an
Oregon  Corporation,  and a wholly owned subsidiary of PCC (Purchaser),  for the
Purchaser to acquire all shares  (fully  diluted) of common stock of the Company
for $15.25 per share.  The Merger  Agreement is discussed in Items 10, 11 and 12
and  explained in the  Company's  Solicitation/Recommendation  Statement on Form
14D-9  filed  with the  Commission  on March 3, 1998  which is  incorporated  by
reference within Item 13 to this filing.

                                  Sewer Systems

Low pressure  sewer  systems in the market today were  pioneered by EONE. It has
proven to be an  economical  and  effective  method of  handling  wastewater  in
otherwise  difficult  real  estate  developments  including:  waterfront,  hilly
terrain,  very flat  lands and areas with high  water  tables.  As more and more
communities  are looking for cost effective  solutions to wastewater  collection
problems,  EONE's pressure sewer systems (EONE Sewers), are increasingly used in
mainstream municipal and real estate development applications.

Grinder pumps developed by the Company make the pressure sewer system  feasible.
These units accept  wastewater from point sources,  grind it into a fine slurry,
and pressurize it to permit  transport  through small diameter pipe.  This small
diameter  pressurized  pipe can follow the contour of the terrain,  resulting in
reduced costs of installation  compared to conventional  gravity lines.  Several
models of the grinder pump are manufactured with and without storage tanks.

The  manufacture of the grinder pump involves use of  independent  suppliers for
several of the components.  Fabrication,  machining, assembly and testing of the
assembled units are completed at the Company's plant.

The principal  markets  served by the pressure sewer systems are city and county
sewer districts,  residential builders and land developers along with individual
homeowners.  Products are sold to these  markets  from  regional  sales  offices
across the  United  States  and  through a network of more than 30  distributors
throughout  the United  States,  Canada,  Europe and Japan.  Several  other pump
manufacturers  offer  grinder  pumps and  compete  with  EONE in these  markets.
Environment  One's  positive  displacement  pump and tank are  unique,  offering
several distinct  advantages over the centrifugal  pump. The Company believes it
is well known in this marketplace.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                 Part I (con't.)

                                Detection Systems

The Company's  Detection  Systems'  products  include:  (1) Generator  Condition
Monitor; and (2) Hydrogen Control Cabinet. These detection instruments are based
on the Company's expertise in the detection of sub-microscopic particles and gas
monitoring.

         Generator Condition Monitor (GCM)

The GCM is  designed  to  provide  early  warning  of  certain  thermal  failure
conditions  which  could lead to  shutdown  of  hydrogen-cooled  electric  power
generators.   The  monitor  also  facilitates  preventive  maintenance  of  such
equipment.  The principal market served is the electric utility  industry,  both
domestic  and  international.  Customers  are  served by direct  sales  from the
Company's  marketing  function or by manufacturers'  representatives  in certain
parts of the world.  There are only two other  manufacturers  of this  equipment
worldwide and the Company is believed to be the leader in this market.

As a companion to the GCM, the Company also manufactures and sells an instrument
for  air-cooled  electric  generators  (GCM-A).  This  extends the  marketing of
condition  monitors to include  hydroelectric  and gas turbine driven generating
stations.

As an ancillary  product to the GCM, the Company sells tagging  compounds  under
the name GEN-TAGS  that are applied to critical  areas of large  electric  power
generator units.  The tagging  compounds will assist utilities to quickly locate
"hot spots"  developing in  generators  causing the GCM to alarm at which time a
sample of the overheated tagging compound (pyrolysate) is collected. Analysis of
the sample determines the location of the "hot spot" area. Depending on the area
of overheating,  a different "fingerprint" or "chemical signature" will identify
each area for location of potential trouble.

         Hydrogen Control Cabinet (HCC)

The HCC  continuously  analyzes  the purity of hydrogen and controls the rate of
scavenging in hydrogen-cooled  turbine  generators.  It is vital to maintain the
purity of the hydrogen  because it directly  affects both efficiency and safety.
To maintain a hydrogen purity of  approximately  98% in the generator  casing, a
small quantity of hydrogen gas is  continuously  scavenged from the  generator's
end seals and discharged to the atmosphere.

The major  components  of the HCC are two  completely  independent,  interactive
hydrogen  sensors and associated  electronics  that were designed by Environment
One. The  micro-controller  based system and explosion proof design represents a
new generation of hydrogen purity analyzer.

The HCC is sold direct by the Detection Systems  marketing  function and has the
potential for sale to the same customer base as the GCM.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                 Part I (con't.)

                         Financial Data - 2 Year Summary

Industry segment information is included in Note 8 to the Company's consolidated
financial statements included in Item 7.

                                Net Sales Backlog

The backlog of unshipped orders by industry  segment is shown below.  Generally,
all orders in the backlog at year-end are shipped during the following year. The
backlog has been  calculated by EONE's normal  practice of including only orders
that are to be delivered within twelve months. While these orders are firm, they
could be subject  to change or  cancellation  in the  future.  In the past,  the
effect of changes and cancellations has not been significant.

Net Sales Backlog as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>

                                         1997           1996
                                      ----------     ----------
<S>                                   <C>             <C>
                Sewer Systems ...     $1,600,811      1,403,661
                Detection Systems      2,051,205        517,788
                                      ----------     ----------
                                      $3,652,016      1,921,449
                                      ==========     ==========
</TABLE>
                                    Sources of Supply

Principal  components  used in the  manufacture  of the  Company's  grinder pump
include a motor, high density  polyethylene  parts, cast iron parts,  fabricated
stainless  steel and solid state controls.  The principal  components of the GCM
and HCC include fabricated aluminum,  sheet metal and stainless steel, assembled
miscellaneous electronics, printed circuit boards and mechanical gauges.

The  Company  does not  believe  that it is  dependent  on any one  supplier  or
subcontractor  to the  extent  that  termination  or  loss  of the  supplier  or
subcontractor relationship would have a material adverse effect on the Company's
business.

                                     Patents

Since  inception,  the Company has been issued numerous U.S. and foreign patents
and it has filed numerous patent applications relating to product features.  The
Company believes that patent protection is important and materially  strengthens
its competitive  position with respect to all the specific  products that it now
markets. The Company,  however, does not depend on any single patent or group of
patents.

                            Research and Development

All  research  and  development  costs are  charged  directly to  operations  as
incurred.  Research  and  development  costs  were  approximately  $215,000  and
$177,000 in 1997 and 1996, respectively.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                 Part I (con't.)

                                  Environmental

Compliance by the Company with federal, state and local environmental protection
laws  during 1997 and 1996 had no material  effect  upon  capital  expenditures,
earnings or the competitive position of the Company.

                                    Employees

At December 31, 1997, the Company had 99 full-time employees.

                               Principal Customers

The Company had sales  equaling 9% and 6% of total company sales to one customer
in 1997 and 1996, respectively.

                       Foreign Operations and Export Sales

The Company has entered into foreign markets and license agreements with respect
to certain  products.  In December 1990,  Environment One Corporation  Japan Co.
Ltd. was founded in Tokyo,  Japan as a 70% owned subsidiary of the Company.  The
purpose  of this  corporation  is to  promote  the  adaptation  and sales of low
pressure sewer systems in Japan.

Export sales of low pressure sewer systems were  approximately  6.1% and 2.8% of
total  Company sales in 1997 and 1996,  respectively.  Export sales of detection
instruments  (including IFD) were  approximately  6.3% and 4.5% of total Company
sales in 1997 and 1996, respectively.

Cautionary  Statement  for the Purposes of the "Safe  Harbor"  Provisions of the
Private Securities Litigation Reform Act of 1995

The Private  Securities  Litigation  Reform Act of 1995 (the  "Act")  provides a
"safe harbor" for  forward-looking  statements to encourage companies to provide
prospective  information about themselves while limiting unwarranted litigation,
provided  that  the  statements  are  identified  as  forward-looking   and  are
accompanied by meaningful cautionary statements regarding important factors that
could cause  actual  results to differ  materially  from those  projected in the
statement. The Company desires to take advantage of the "safe harbor" provisions
of the Act, and is including the  information set forth below in the Form 10-KSB
to point out the  inherent  difficulties  in  predicting  the  impact of certain
factors.

While the Company believes that its assumptions  underlying any  forward-looking
statements are reasonable,  the following information includes important factors
which could cause the Company's  actual  results to differ  materially  from any
result  which  might be  projected,  forecasted,  estimated,  or budgeted by the
Company in its forward-looking statements, whether contained in this Form 10-KSB
or otherwise:

1. Heightened  competition,  including the intensification of price competition,
the entry of new  competitors,  and the  introduction of new products by new and
existing competitors.
2. Failure to obtain new customers or retain existing customers.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                 Part I (con't.)

Cautionary  Statement  for the Purposes of the "Safe  Harbor"  Provisions of the
Private Securities Litigation Reform Act of 1995 (con't.)

3. Adverse  publicity and news coverage  impacting the Company's  reputation and
sales potential.
4. Inability to carry out marketing and sales plans due to unforeseen factors.
5. Significant economic downturns in the geographic market areas serviced by the
Company.
6. Higher service,  administrative,  or general expenses  occasioned by the need
for additional advertising, marketing, administrative, or management information
systems expenditures.
7. A lack of availability of raw materials,  necessary manufacturing  equipment,
or contract manufacturers to meet the Company's needs.
8. Underutilization  of the  Company's  manufacturing  resources,  resulting  in
production inefficiencies and higher costs.
9. Start-up expenses,  inefficiencies,  delays, and increased depreciation costs
in connection  with the start of production in new  facilities and expansions of
existing facilities.
10.The  acquisition  of    fixed  and  other  assets,  including  inventory  and
receivables,  and the making or  incurring  of any  expenditures  and  expenses,
including but not limited to depreciation and research and development expenses.
11. Any  revaluation  of assets or related  expenses  and the amount of, and any
changes to, tax rates.
12. Loss or retirement of key executives.
13. Any  activities  of  parties  with   which the  Company  has  agreements  or
understandings,  including  matters affecting any investment or joint venture in
which the Company has an investment.
14. The amount,  type, and cost of the financing  available to the Company,  and
any changes to that financing.
15. Adverse results in significant litigation or regulatory proceedings.
16. Adverse  changes in laws,  regulations,  interpretations,  and   enforcement
policies affecting the company and its business operations.
17. Natural  disasters,  work stoppages,  and other events beyond the control of
the Company.

The foregoing list of factors  should not be construed as exhaustive,  or as any
admission regarding the adequacy of disclosures made by the Company prior to the
filing of this Form 10-KSB.

Item 2.   Property

The  Company's  headquarters  in  Niskayuna,  New York is  located  in a modern,
concrete  and steel  frame,  electrically  and gas  heated  and air  conditioned
building on approximately 35 acres of wooded land owned in fee. This facility is
subject to a  mortgage  as  described  in Note 2 to the  Company's  consolidated
financial  statements  included  in Item 7. All  segments  of the  business  are
operated from the Company's headquarters.

Management believes that the Company's  facilities are well maintained,  in good
operating condition, adequately covered by insurance and are well adapted to its
present needs.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                 Part I (con't.)


Item 3.  Legal Proceedings

In the second  quarter of 1997,  the Company  was served  with a complaint  by a
former distributor,  Abaxial  Associates,  Inc., who was terminated for cause in
1996. The action was filed in the Ontario Court of Justice  (General  Division),
in  Toronto,  Canada.  Prior to  termination,  Abaxial  Associates,  Inc.  was a
distributor  for the  Company's  grinder  pumps in the Province of Ontario.  The
plaintiff's  complaint  seeks  monetary  damages  in the  amount  of  $1,600,000
(Canadian   Dollars),   plus  interest  and  costs  based  on   allegations   of
misrepresentation  and breach of contract relating to the Company's  termination
of its relationship with the plaintiff.

Management of the Company is of the opinion that the claim, filed as a result of
termination  of the business  relationship  with Abaxial  Associates,  Inc.,  is
unsubstantiated  and  without  merit  and that the  Company  acted  properly  in
terminating  its  relationship  with  Abaxial  Associates,  Inc. The Company has
engaged  legal counsel in Toronto,  Canada and intends to vigorously  defend the
action.  Although no assurances can be given, the Company's  management believes
the ultimate  outcome of this allegation will not have a material adverse affect
on the financial position or results of operations of the Company.

Item 4.  Submission of Matters to a Vote of Security Holders
None
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                     Part II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

                           Price Range of Common Stock

The  Company's  common stock is traded on the The Nasdaq  Stock Market  (Nasdaq)
under the trading symbol EONE.  The following  table sets forth the high and low
sales  prices  of the  common  stock for the  calendar  quarters  indicated,  as
reported by the Nasdaq:

                                            High                       Low
                                            ----                       ---

                    1997
                  Quarter 1                 7 3/4                      5 5/8
                  Quarter 2                 9 3/4                      6 3/8
                  Quarter 3                 10 1/4                     8 3/4
                  Quarter 4                 10 7/8                     9 3/4


                    1996
                  Quarter 1                 5 1/2                      4 3/4
                  Quarter 2                 6                          4 1/2
                  Quarter 3                 5 3/4                      4 3/4
                  Quarter 4                 6                          5 3/8

                     Approximate Number of Security Holders

     Title of Class:                  Approximate Number of Holders at 12/31/97:
     ---------------                  ------------------------------------------
Common Stock $.10 par value                             2150 (1)

(1)  Includes  shareholders  of record in  "nominee"  or  "street"  name held by
brokers and others.

                                    Dividends

The Company paid no  dividends  on its common  stock  during 1997 and 1996.  The
Company's policy with regard to payment of dividends is evaluated  annually with
consideration given to future growth and operating fund requirements. Currently,
Company policy is not to pay dividends.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part II (con't.)

Item 6.  Management's Discussion and Analysis and Results of Operations

Cash provided from operations, as shown by the statement of cash flows (Item 7),
for 1997 was  $2,789,000.  This  represented  an  increase  of  $1,862,000  when
compared to 1996. Net income  represented  $1,960,000 of the operating cash flow
while non-cash expenses of depreciation/amortization  and compensation,  current
and deferred, added $627,000 and $755,000,  respectively.  Major working capital
adjustments  included an increase in  receivables  of $295,000 and a decrease in
accounts  payable  of  $106,000  Investment  in  capital  expenditures  for 1997
amounted to $470,000 and represented an increase of $46,000 over 1996. The major
components of capital expenditures in 1997 were an upgrade to the Company's main
computer  system,  tooling  and  equipment  expenditures  in the  Sewer  Systems
Business for cost  reduction,  enhanced  product  performance and to improve the
manufacturing  process along with a new trade show exhibit for the Sewer Systems
Business.

In January, 1996, the Company concluded an agreement with PROTEC Fire Detection,
plc of Nelson, Lancashire,  England for the sale of its Cirrus IFD product line.
In a two-stage  transaction with an approximate  value of $750,000,  the Company
transferred  all Cirrus IFD assets and  operations to PROTEC and  simultaneously
entered into a product technology development contract that was concluded during
1996.

In September,  1996, the Company recognized the potential  uncollectibility of a
note receivable from General Testing  Corporation  incurring a pre-tax write-off
of $136,000.  After failure to receive timely payments on the note, the Company,
through legal counsel,  served notice of default on the note to General  Testing
Corporation.  General Testing  Corporation did not cure the payment  defaults in
the period required.  The Company has pursued collection on the note with little
success.

The following table shows selected  balance sheet  information for 1997 and 1996
expressed in thousands of dollars:
<TABLE>
<CAPTION>


                                              1997        1996
                                           -------      ------
<S>                                        <C>          <C>
                  Current Assets .....     $10,405       7,614
                  Current Liabilities        4,049       3,628
                  Working Capital ....       6,356       3,986
                  Total Assets .......      14,092      11,255
                  Long-Term Debt .....       1,162       1,500
                  Shareholders' Equity       7,859       5,713
</TABLE>


In 1997,  the  Company,  for all of its  systems,  began a year 2000  conversion
project to address all necessary changes,  testing and  implementation.  Project
completion for internal systems is estimated to be 3/31/99. Cost for the project
is estimated to be immaterial.  The bulk of the systems affected are serviced by
highly  reliable third parties who have been contacted by Company  personnel and
have  provided  feedback  that any  resulting  changes  will be done in a timely
manner to meet the 3/31/99 deadline.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part II (con't.)

                                     Summary

The following table shows a summary of operating  results for the years 1997 and
1996 expressed as a percentage of sales:
<TABLE>
<CAPTION>
                                                       1997              1996
                                                      -----              -----
<S>                                                   <C>                <C>
                  Net Sales
                     Sewer Systems                     87.1 %             86.9 %
                     Detection Systems                 10.9                8.8
                     Corporate                          2.0                4.3
                                                      -----              -----
                           Total Sales                100.0              100.0

                  Cost of Sales                        61.9               66.2
                                                      -----              -----
                  Gross Margin                         38.1               33.8
                  Selling, Marketing and G&A           24.9               23.6
                                                      -----              -----

                  Income from Operations               13.2               10.2
                  Other Expense                          .2                 .8
                                                      -----              -----

                  Income   Before Income Taxes         13.0                9.4
                  Income Tax Expense                    4.9                3.6
                                                      -----              -----

                  Net Income                            8.1 %             5.8 %
                                                      =====              ====
</TABLE>
Notes:   Amounts  referred  to  below  are set  forth in Item 7.  Gross  changes
         between  years  include  all  businesses.  Detailed  revenue  and  cost
         analyses exclude the effect of the sale of the IFD as part of Detection
         Systems.

                 Twelve Months Ended December 31, 1997 and 1996

Revenues for the period  increased by $2,794,000 or 13.0% when compared to 1996.
Sewer  Systems  sales  increased by  $2,473,000  while  Detection  Systems sales
increased $759,000. The increased sales in Sewer Systems are attributable to the
investment  and focus the Company has placed on sales and  marketing.  Increased
sales are being realized from the Company's revamped  distribution  system along
with project sales that are increasing in number and size.

The Detection  Systems revenue increase is attributable to increases in both GCM
and HCC on a year to  year  comparative  basis.  Following  the  sale of the IFD
business,  the Detection Systems selling and marketing  organization was able to
focus on a single market,  the electric power  generation  market,  resulting in
increased penetration and sales to those customers. Also, the Company's sales of
the HCC benefited from being in its second full year after product  introduction
in 1995.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part II (con't.)

             Twelve Months Ended December 31, 1997 and 1996 (con't.)

Cost  of Sales  increased  by $791,000  when  compared to 1996.  As a percent of
sales,  cost of sales fell to 61.9% in 1997 versus 66.2% in 1996. Direct cost of
sales fell in terms of percent of sales due to  product  mix and  material  cost
reductions. Partially offsetting this was an increase in non-labor indirect cost
of sales.

Selling and Marketing  costs  increased  $231,000  when compared to 1996.  Sewer
Systems  costs in this  category  increased  $310,000  while costs in  Detection
Systems  decreased  $49,000.  Offsetting the overall increase were costs avoided
due to the sale of the  IFD.  Contributing  to the  increase  in  Sewer  Systems
marketing costs were full year expenses  associated with the operations of sales
offices opened in 1996 and the national  sales manager hired in 1996,  increased
cost for the Florida sales office,  sales literature,  sales promotion and trade
shows along with  increased  labor  costs.  Detection  Systems  marketing  costs
decreased  primarily due to reductions  in labor and internal  sales  commission
expenses.

General and  Administrative  costs,  including  research and  development  (R&D)
expense, increased $765,000 over 1996. Excluding R&D, general and administrative
costs increased  $727,000.  The increase in general and administrative  costs is
primarily  a result of the growth  performance  sharing and  deferred  executive
compensation  plan  adopted in 1996.  This plan  allows  for bonus and  deferred
compensation  to be paid and/or accrued only if the Company,  as a whole,  meets
specified targets for growth in sales,  growth in earnings and return on assets.
Other general and  administrative  expenses showing  increases in 1997 over 1996
were labor costs, investor relations,  training,  travel, legal, consultants and
miscellaneous  expenses.  Decreases in year to year  expenses  were  realized in
expenses for directors fees, temporary help and allocation of facilities costs.

Research and  development  labor costs  increased  $67,000 while non-labor costs
decreased  $29,000.  R&D costs in Sewer Systems  remained  virtually  flat while
costs in Detection Systems increased $38,000.  The increase in Detection Systems
costs is primarily a result of increased expenditures related to new design work
in both the HCC and GCM that were incurred in 1997.

Interest  expense  decreased  to $157,000  in 1997 when  compared to $249,000 in
1996. Interest income of $40,000 was recorded due to overnight investment of the
available  cash  balances.  The  Company  eliminated  short-term  line of credit
borrowing  in 1997 while  paying  back  $338,000  in  principal  payments on its
long-term  debt.  The Company's  borrowing rate over bank prime rate remained at
prime for the line of credit  and prime plus  one-half  point for the term loan.
Continued  control over  expenses  and capital  expenditures,  cash  provided by
operations,  reductions in borrowing and reduced  interest rates all contributed
to the reduction in interest expense on a comparative basis.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part II (con't.)

             Twelve Months Ended December 31, 1997 and 1996 (con't.)

Income Taxes during 1997 and 1996 were $1,204,000 and $767,000, respectively. As
a percent of income before taxes, both years were approximately 38%.

Liquidity
Through cash provided by operations and availability under the operating line of
credit,  the  Company  was able to meet its  working  capital  needs and capital
expenditure  requirements in 1997. The Company's line of credit availability was
increased to $5.0 million during 1997.  There was no borrowing  against the line
of credit as of December 31, 1997. The Company complied with all applicable loan
covenants throughout 1997 and 1996.

Management  believes that the Company will be able to meet its cash requirements
in 1998 as a result  of cash  generated  from  operations.  The  line of  credit
expires in April of 1998 and is currently being  considered for renewal with the
Company's lender.  Although no assurances can be given,  management is confident
that,  if  requested,  negotiations  for  renewal  will  result in a  successful
outcome.

Effects of Inflation and Changing Prices
The  impact  of  general  inflation  on the  Company's  operations  has not been
significant to date and the Company believes  inflation will continue to have an
insignificant  impact.  In  response  to the  limited  effect of  inflation  and
changing prices on the Company's  manufacturing and operating costs, the Company
has historically used selling price adjustments,  cost containment  programs and
improved  operating  efficiencies to offset the otherwise negative impact on its
operations.

Item 7.  Financial Statements

Index to Financial Statements:


         Independent Auditors' Report

         Consolidated Balance Sheet as of December 31, 1997

         Consolidated Statements of Income for the Years Ended
         December 31, 1997 and 1996

         Consolidated Statements of Shareholders' Equity for the
         Years Ended December 31, 1997 and 1996

         Consolidated Statements of Cash Flows for the Years Ended
         December 31, 1997 and 1996

         Notes to Consolidated Financial Statements

<PAGE>

                          Independent Auditors' Report




The Shareholders and Board of Directors
Environment One Corporation:





We have  audited  the  consolidated  financial  statements  of  Environment  One
Corporation  and  subsidiary  as  listed  in  the  accompanying   index.   These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Environment  One
Corporation  and  subsidiary  as of December 31, 1997,  and the results of their
operations  and their  cash flows for each of the years in the  two-year  period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.








                                                       /s/ KPMG Peat Marwick LLP
                                                       -------------------------
                                                           KPMG Peat Marwick LLP




Albany, New York
February 6, 1998, except as to note 11,
         which is as of February 24, 1998

<PAGE>
<TABLE>
<CAPTION>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

                           Consolidated Balance Sheet

                                December 31, 1997



                              Assets
<S>                                                                <C>
Current assets:
     Cash and cash equivalents ..............................      $  2,507,866
     Receivables:
         Trade (note 2) .....................................         5,330,624
         Other ..............................................             3,216
                                                                   ------------
                                                                      5,333,840
         Less allowance for doubtful accounts ...............          (106,981)
                                                                   ------------
              Net receivables ...............................         5,226,859

     Inventories (note 2):
         Finished products ..................................           483,906
         Work in process ....................................           385,013
         Raw materials and supplies .........................         1,399,533
                                                                   ------------
              Total inventories .............................         2,268,452

     Prepaid expenses and other current assets (note 5) .....           401,837
                                                                   ------------
              Total current assets ..........................        10,405,014
                                                                   ------------

Property, plant and equipment (note 2):
     Land and land improvements .............................           334,491
     Building and building improvements .....................         2,324,333
     Machinery and equipment ................................         5,371,630
     Construction in progress ...............................            95,393
                                                                   ------------
                                                                      8,125,847
     Less accumulated depreciation ..........................         4,868,005
                                                                   ------------
              Net property, plant and equipment .............         3,257,842

Patents and other assets, net ...............................           104,185
Deferred income taxes (note 5) ..............................           325,197
                                                                   ------------
                                                                   $ 14,092,238
                                                                   ============

</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

                      Consolidated Balance Sheet, Continued

                                December 31, 1997




               Liabilities and Shareholders' Equity
<S>                                                                     <C>
Current liabilities:
     Book overdraft ...............................................     $    531,498
     Current installments of long-term debt (note 2) ..............          338,100
     Accounts payable .............................................        1,812,407
     Income taxes payable (note 5) ................................          350,257
     Accrued expenses:
         Payroll and related costs (note 6) .......................          457,777
         Interest .................................................           11,685
         Warranty .................................................          315,000
         Other accrued expenses ...................................          232,194
                                                                        ------------
              Total current liabilities ...........................        4,048,918

Long-term debt, excluding current installments (note 2) ...........        1,162,394
Deferred compensation (note 6) ....................................          953,429
                                                                        ------------
              Total liabilities ...................................        6,164,741
                                                                        ------------

Minority interest .................................................           68,760
                                                                        ------------
Shareholders' equity (note 4):
     Common stock of $.10 par value per share. Authorized 6,000,000
         shares; issued 4,257,724 shares ..........................          425,772
     Additional paid-in capital ...................................        7,969,197
     Accumulated deficit ..........................................         (116,119)
                                                                        ------------
                                                                           8,278,850
     Less cost of 80,704 common shares in treasury (note 6) .......         (420,113)
                                                                        ------------
              Total shareholders' equity ..........................        7,858,737
                                                                        ------------

Commitments and contingencies (notes 3, 10 and 11)
                                                                        $ 14,092,238
                                                                        ============

</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                               ENVIRONMENT ONE CORPORATION
                                      AND SUBSIDIARY

                            Consolidated Statements of Income

                          Years ended December 31, 1997 and 1996



                                                               1997              1996
                                                          ------------      ------------
<S>                                                       <C>               <C>
Net sales ...........................................     $ 24,330,721        21,536,430

Cost of goods sold ..................................       15,048,746        14,258,235
                                                          ------------      ------------
         Gross profit ...............................        9,281,975         7,278,195
                                                          ------------      ------------

Operating expenses:
     Selling and marketing ..........................        2,734,121         2,502,644
     General and administrative .....................        3,333,238         2,568,645
                                                          ------------      ------------
         Total operating expenses ...................        6,067,359         5,071,289
                                                          ------------      ------------

         Income from operations .....................        3,214,616         2,206,906
                                                          ------------      ------------

Other income (expense):
     Interest expense ...............................         (157,220)         (248,725)
     Interest income ................................           40,335              --
     Miscellaneous income (notes 1(a) and 6) ........           91,906            46,774
     Minority interest in (income) loss of subsidiary          (25,692)           16,237
                                                          ------------      ------------
                                                               (50,671)         (185,714)
                                                          ------------      ------------

         Income before income taxes .................        3,163,945         2,021,192

Income tax expense (note 5) .........................        1,203,900           766,505
                                                          ------------      ------------

         Net income .................................     $  1,960,045         1,254,687
                                                          ============      ============

Per share amounts:
         Basic earnings .............................     $        .46      $        .30
                                                          ============      ============

         Diluted earnings ...........................     $        .44      $        .29
                                                          ============      ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                            ENVIRONMENT ONE CORPORATION
                                                  AND SUBSIDIARY

                                  Consolidated Statements of Shareholders' Equity

                                      Years ended December 31, 1997 and 1996

                                                                                                                   Total
                                                           Additional                                             share-
                                            Common          paid-in         Accumulated        Treasury          holders'
                                            stock            capital          deficit           stock             equity
                                         -----------      -------------    -------------     -----------     --------------
<S>                                    <C>                   <C>              <C>                <C>              <C>
Balance at December 31, 1995           $     412,761          7,295,115       (3,330,851)        (29,216)         4,347,809

Exercise of options (22,600 shares
     of common stock)                          2,260             16,778               -          (14,340)             4,698

Tax benefit from exercise of options               -             38,182               -                -             38,182

Acquisition of 6,775 shares of
     common stock                                  -                  -               -          (34,490)           (34,490)

Issuance of 999 shares of
     common stock from treasury                    -              1,189               -            3,806              4,995

Issuance of 19,755 shares of
     common stock                              1,976             95,525               -                -             97,501

Net income - 1996                                 -                  -         1,254,687               -           1,254,687
                                         -----------      -------------    -------------     -----------     --------------

Balance at December 31, 1996                 416,997          7,446,789       (2,076,164)        (74,240)         5,713,382

Exercise of options (5,500 shares
     of common stock)                            550             13,126               -           (6,579)             7,097

Tax benefit from exercise of options               -              7,414               -                -              7,414

Issuance of 82,257 shares of
     common stock                              8,225            491,242               -         (369,461)           130,006

Issuance of 5,363 shares of common
     stock from treasury                          -                  -                -           30,167             30,167

Compensation expense on issuance of
     10,000 warrants                              -              10,626               -               -              10,626

Net income - 1997                                 -                  -         1,960,045              -           1,960,045
                                         -----------      -------------    -------------     -----------     --------------

Balance at December 31, 1997           $     425,772          7,969,197         (116,119)       (420,113)         7,858,737
                                         ===========      =============    =============     ===========     ==============

</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                    ENVIRONMENT ONE CORPORATION
                                          AND SUBSIDIARY

                               Consolidated Statements of Cash Flows

                              Years ended December 31, 1997 and 1996




                                                                          1997             1996
                                                                      -----------      -----------
<S>                                                                   <C>              <C>
Cash flows from operating activities:
    Net income ..................................................     $ 1,960,045        1,254,687
    Adjustments to reconcile net income to net cash provided by
      operating activities:
          Depreciation and amortization .........................         627,498          596,293
          Gain on termination of defined benefit pension plan ...         (63,000)            --
          Gain on sale of equipment and patents .................            --           (291,544)
          Loss on write-off of note receivable ..................            --            135,533
          Minority interest in income (loss) of subsidiary ......          25,692          (16,237)
          Non-cash compensation expense .........................         140,632          102,496
          Accrual for deferred compensation .....................         614,135          369,461
          Deferred income taxes .................................        (191,739)        (271,539)
          Increase in receivables ...............................        (295,438)      (2,209,701)
          Decrease (increase) in inventories ....................           3,648         (422,539)
          Decrease (increase) in prepaid expenses ...............         (66,832)           4,378
          Increase (decrease) in accounts payable ...............        (106,459)         774,313
          Increase in income taxes payable ......................          48,127          347,726
          Increase in accrued expenses ..........................          93,030          554,013
                                                                      -----------      -----------
              Net cash provided by operating activities .........       2,789,339          927,340
                                                                      -----------      -----------
Cash flows from investing activities:
    Capital expenditures, including patents .....................        (469,605)        (423,701)
    Proceeds from sale of equipment and patents .................            --            300,000
                                                                      -----------      -----------
              Net cash used in investing activities .............        (469,605)        (123,701)
                                                                      -----------      -----------
Cash flows from financing activities:
    Net increase in book overdraft ..............................         531,498             --
    Net decrease in note payable to bank ........................         (75,000)        (475,000)
    Proceeds from issuance of common stock ......................           7,097            4,698
    Purchases of treasury stock .................................            --            (34,490)
    Capital contribution by minority interest ...................            --             10,775
    Principal payments on long-term debt ........................        (338,100)        (338,100)
                                                                      -----------      -----------
              Net cash provided by (used in) financing activities         125,495         (832,117)
                                                                      -----------      -----------

Net increase (decrease) in cash and cash equivalents ............       2,445,229          (28,478)

Cash and cash equivalents at beginning of year ..................          62,637           91,115
                                                                      -----------      -----------

Cash and cash equivalents at end of year ........................     $ 2,507,866           62,637
                                                                      ===========      ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                  ENVIRONMENT ONE CORPORATION
                                         AND SUBSIDIARY

                        Consolidated Statements of Cash Flows, Continued

                             Years ended December 31, 1997 and 1996




                                                                        1997            1996
                                                                     ----------     ----------
<S>                                                                  <C>            <C>
Supplemental  disclosures  of cash flow  information:
 Cash paid during the year for:
       Interest ................................................     $  163,167        251,503
                                                                     ==========     ==========

       Income taxes ............................................     $1,347,512        689,173
                                                                     ==========     ==========

Supplemental disclosure of non-cash financing activity:
   Exchange of 892 and 2,390 shares of common stock in full and
    partial payment of exercise price on options during 1997 and
    1996, respectively .........................................     $    6,579         14,340
                                                                     ==========     ==========

   Tax benefit from exercise of stock options ..................     $    7,414         38,182
                                                                     ==========     ==========

Issuance of 65,681 deferred compensation shares to treasury ....     $  369,461           --
                                                                     ==========     ==========

Issuance of 5,363 deferred compensation shares from treasury ...     $   30,167           --
                                                                     ==========     ==========

</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           December 31, 1997 and 1996


(1)    Summary of Significant Accounting Policies
       (a)Description of Business
            Environment    One    Corporation     (the    "Company")    is    an
                environment-oriented  product and service company, which started
                operations  in  January of 1969.  The  Company  operates  in two
                business  segments:  (1) low  pressure  sewer  systems,  and (2)
                detection systems.

            The Sewer  Systems  business  primarily  manufactures  and  services
                grinder  pumps  pioneered  by the  Company to make low  pressure
                sewer systems feasible. The low pressure sewer system has proven
                to be an economical and effective  method of sewering  otherwise
                difficult  land  developments   including:   waterfront,   hilly
                terrain,  very flat lands and areas with high water  tables.  As
                more  and  more  communities  are  looking  for  cost  effective
                solutions to waste water  collection  problems,  Environment One
                Corporation's  solution,  EONE Sewers,  is increasingly  used in
                mainstream municipal and developer  applications.  The principal
                markets  served  by  the  Company  are  city  and  county  sewer
                districts, builders, land developers, and individual homeowners.
                Products are sold by direct sales from the  Company's  marketing
                function and through dealer  networks  across the United States,
                Canada,  Europe,  and Japan.  There are other pump manufacturers
                offering  grinder  pumps for these  markets.  All but one of the
                Company's competitors offer a centrifugal type of pump.

            The Detection Systems business  manufactures the Generator Condition
                Monitor  and  the  Hydrogen  Control   Cabinet.   The  Generator
                Condition  Monitor  is  designed  to  provide  early  warning of
                certain thermal failure conditions, which could lead to shutdown
                of hydrogen  cooled  electric  power  generators.  The  Hydrogen
                Control Cabinet continuously analyzes the purity of hydrogen and
                controls  the rate of  scavenging  in  hydrogen  cooled  turbine
                generators.  The Detection  Systems  products are sold by direct
                sales  from the  Company's  marketing  function  and  through an
                independent  network  of  distributors  in  the  United  States,
                Canada, and a few countries  overseas.  There are believed to be
                only two other  manufacturers of this type of detection  systems
                equipment worldwide.

            The Company  concluded an agreement with PROTEC Fire Detection,  plc
                of Nelson, Lancashire,  England on January 16, 1996 for the sale
                of its Cirrus IFD product  line,  previously  a component of the
                Detection  Systems  business.  As a part of this agreement,  the
                Company sold all Cirrus IFD assets, with a net book value at the
                date of sale of $8,456,  for a realized  gain of  $291,544.  The
                gain,   net  of  certain   other   expenses,   is   included  in
                miscellaneous  income  in  the  accompanying  1996  consolidated
                statement of income.
<PAGE>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued

            In  April 1994, the Company sold its measurements division which had
                previously been a component of the Detection  Systems  business.
                As part of the consideration  received in this sale, the Company
                accepted a five-year  promissory  note  receivable  of $141,458.
                During 1996, the Company  determined that the remaining  balance
                on the  note  was  uncollectible  and  recorded  a  loss  on the
                write-off of the  outstanding  balance of $135,533.  The loss is
                included  in  miscellaneous  income  in  the  accompanying  1996
                consolidated statement of income.

       (b)Principles of Consolidation
            The consolidated   financial   statements   include  the   financial
                statements of Environment One Corporation and its majority-owned
                foreign   subsidiary,   which  was  incorporated  in  1990.  All
                significant  intercompany  balances and  transactions  have been
                eliminated in consolidation.

       (c)Cash Equivalents
            Cash equivalents  of  $2,289,844  at  December  31,  1997 consist of
                overnight  Eurodollar  time  deposits  issued  by a  significant
                Northeastern  United States bank.  These overnight time deposits
                are not insured by the Federal  Deposit  Insurance  Corporation.
                For purposes of the  consolidated  statements of cash flows, the
                Company  considers  all  highly  liquid  debt  instruments  with
                original   maturities  of  three  months  or  less  to  be  cash
                equivalents.

       (d)Per Share Amounts
            On December  31,  1997,  the  Company   adopted  the  provisions  of
               Statement of  Financial  Accounting  Standards  ("SFAS") No. 128,
               Earnings  per  Share.  SFAS No.  128  establishes  standards  for
               computing and presenting earnings per share ("EPS"). SFAS No. 128
               supersedes  Accounting  Principles  Board ("APB") Opinion No. 15,
               Earnings  per Share and  related  interpretations.  SFAS No.  128
               requires dual  presentation  of basic and diluted EPS on the face
               of the income  statement  for all entities  with complex  capital
               structures and specifies additional disclosure requirements.

            Basic EPS  excludes  dilution  and is computed  by  dividing  income
                available to common  shareholders by the weighted average number
                of  common  shares  outstanding  for  the  period.  Diluted  EPS
                reflects the  potential  dilution that could occur if securities
                or other  contracts  to issue  common  stock were  exercised  or
                converted  into  common  stock or  resulted  in the  issuance of
                common  stock  that then  shared in the  earnings  of the entity
                (such as stock  options).  All  prior-period  EPS data have been
                restated to conform to the provisions of SFAS No. 128.
<PAGE>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued

            The  following  tables  provide  calculations  of basic and  diluted
            earnings per share:


            Year ended December 31, 1997
<TABLE>
<CAPTION>
                                                            Weighted      Per
                                               Net           average      share
                                              income         shares      amounts
                                            ----------      ----------    -----
<S>                                         <C>             <C>           <C>
Basic earnings per share .............      $1,960,045       4,228,077    $ .46
                                                                          =====

Effect of dilutive securities:
    Options and warrants .............            --           147,016
    Deferred compensation plan .......            --            58,489
                                            ----------      ----------
Diluted earnings per share ...........      $1,960,045       4,433,582    $ .44
                                            ==========      ==========    =====

</TABLE>
            Year ended December 31, 1996
<TABLE>
<CAPTION>
                                                             Weighted       Per
                                                 Net           average     share
                                               income          shares    amounts
                                              ----------     ----------    ----
<S>                                           <C>            <C>           <C>

      Basic earnings per share ..........     $1,254,687      4,128,175    $.30
                                                                           ====

      Effect of dilutive securities:
          Options .......................           --           90,156
          Deferred compensation plan ....           --           65,681
                                              ----------     ----------    ----
      Diluted earnings per share ........     $1,254,687      4,284,012    $.29
                                              ==========     ==========    ====
</TABLE>
       (e)Revenues, Costs and Inventories
            Sales and related cost of goods sold are  recognized  when  products
                are shipped to customers. Inventories are valued at the lower of
                cost or market (net realizable  value),  costs being  determined
                principally on the basis of standards, which approximate average
                current production costs.
<PAGE>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


       (f)  Property, Plant and Equipment
            Property,  plant and equipment are stated at cost.  Depreciation  on
                property,   plant   and   equipment   is   computed   using  the
                straight-line  method  for  financial  reporting  purposes,  and
                accelerated  methods  for income  tax  purposes.  For  financial
                reporting  purposes,  the Company  provides for  depreciation of
                property,  plant  and  equipment  over the  following  estimated
                useful lives:

                     Land improvements                           5-20 years
                     Building and building improvements          5-45 years
                     Machinery and equipment                     2-20 years

       (g)Patents and Other Assets
            The costs of patents  covering  products  expected  to be viable are
                deferred  and  amortized  on a  straight-line  basis over twenty
                years from the date of filing or  seventeen  years from the date
                of issue,  whichever is greater.  The deferred costs of specific
                patent  applications are written off if a patent  application is
                rejected.  Loan financing fees are amortized  straight line over
                the term of the loan to which they relate.

       (h)Research and Development
            All research  and   development   costs  are  charged   directly  to
                operations  as  incurred.  Research  and  development  costs  of
                approximately  $215,000  and  $177,000  during  1997  and  1996,
                respectively,   are  included  in  general  and   administrative
                expenses.

       (i)  Income Taxes
            Income taxes are accounted for under the asset and liability method.
                Deferred  tax  assets and  liabilities  are  recognized  for the
                future tax consequences  attributable to differences between the
                financial  statement  carrying  amounts of  existing  assets and
                liabilities  and  their  respective  tax  bases  and tax  credit
                carryforwards.  Deferred tax assets and liabilities are measured
                using enacted tax rates  expected to apply to taxable  income in
                the years in which those  temporary  differences are expected to
                be recovered  or settled.  The effect on deferred tax assets and
                liabilities  of a change in tax rates is recognized in income in
                the period that includes the enactment date.

       (j)  Foreign Currency Translation
            Accounts of the foreign  subsidiary  have been  translated into U.S.
               dollars substantially in accordance
                with SFAS No. 52.

       (k)Stock Option Plans
            Prior to January 1, 1996, the Company accounted for its stock option
                plan in  accordance  with the  provisions of APB Opinion No. 25,
                Accounting   for  Stock   Issued  to   Employees,   and  related
                interpretations. As such, compensation expense would be recorded
                on the  date of grant  only  if,  and to the  extent  that,  the
                current  market  price  of the  underlying  stock  exceeded  the
<PAGE>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


                exercise price. On January 1, 1996, the Company adopted SFAS No.
                123,  Accounting  for  Stock-Based  Compensation,  which permits
                entities to  recognize  as expense  over the vesting  period the
                fair  value of all  stock-based  awards  on the  date of  grant.
                Alternatively,  SFAS No. 123 also allows entities to continue to
                apply the provisions of APB Opinion No. 25 and provide pro forma
                net  income and pro forma  earnings  per share  disclosures  for
                employee stock option grants made in 1995 and future years as if
                the  fair-value  based  method  defined in SFAS No. 123 had been
                applied.  The  Company  has  elected  to  continue  to apply the
                provisions  of APB  Opinion  No.  25 and  provide  the pro forma
                disclosure requirements of SFAS No. 123.

       (l)  Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
            Of
            The Company  adopted the provisions of SFAS No. 121,  Accounting for
                the Impairment of Long-Lived Assets and for Long-Lived Assets to
                Be Disposed Of, on January 1, 1996. This Statement requires that
                long-lived  assets  and  certain  identifiable   intangibles  be
                reviewed   for   impairment   whenever   events  or  changes  in
                circumstances  indicate that the carrying amount of an asset may
                not be recoverable. Recoverability of assets to be held and used
                is measured by a comparison  of the carrying  amount of an asset
                to future net cash flows  expected to be generated by the asset.
                If such assets are considered to be impaired,  the impairment to
                be  recognized  is measured by the amount by which the  carrying
                amount  of the  assets  exceeds  the fair  value of the  assets.
                Assets  to be  disposed  of are  reported  at the  lower  of the
                carrying  amount or fair value less costs to sell.  Adoption  of
                SFAS No.  121 did not have a  material  impact on the  Company's
                financial position, results of operations or liquidity.

       (m)Use of Estimates
            Management  of the  Company  has  made a  number  of  estimates  and
                assumptions  relating to the reporting of assets and liabilities
                and the  disclosure  of  contingent  assets and  liabilities  to
                prepare these  consolidated  financial  statements in conformity
                with generally accepted  accounting  principles.  Actual results
                could differ from those estimates.

(2)    Short-term and Long-term Debt
       The Company has available a $5,000,000 line of credit of which $5,000,000
          is  available  at  December  31,  1997.  The line is  secured by trade
          accounts receivable and inventories. The Company had $0 outstanding on
          this line of credit at December  31, 1997.  The interest  rate on this
          short-term  borrowing  at  December  31, 1997 is based upon the bank's
          prime  rate and was  8.50%.  The line of credit,  unless  extended  or
          renewed, expires on April 29, 1998.
<PAGE>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued

       The Company's  long-term  debt consisted of the following at December 31,
       1997:
<TABLE>
<CAPTION>
<S>                                                                 <C>
 Construction note, payable in installments of $28,175
    monthly beginning January 1, 1995, plus interest based
    on the bank's prime rate plus (% at December 31, 1997
    (9.0% at December 31, 1997), maturing December 31, 2000.
    Secured by real property                                        $  1,500,494

 Less installments due within one year                                   338,100
                                                                    ------------
         Long-term debt, excluding current installments             $  1,162,394
                                                                    ============
</TABLE>
       The line of credit and  construction  loan agreements  require compliance
          with certain financial loan covenants related to minimum current, debt
          service coverage and debt to worth ratios,  as well as minimum working
          capital and net worth,  and  limitations on capital  expenditures.  At
          December 31, 1997, the Company was in compliance with these covenants.

       Future principal payments on long-term debt are as follows:

                           1998                                $  338,100
                           1999                                   338,100
                           2000                                   824,294
                                                               ----------
                                                               $1,500,494
                                                               ==========

       The Company is not required to maintain compensating balances pursuant to
          the credit terms under its line of credit with the bank.

(3)    Leases
       The Company is a party to noncancellable  operating leases for the rental
          of equipment  and office  space.  Total rent  expense  incurred by the
          Company  under  operating  leases during 1997 and 1996 was $34,889 and
          $17,057, respectively.

       The future minimum lease payments  under noncancellable  operating leases
          as of December 31, 1997 are as follows:

                 Year ending

                    1998                                          $ 51,659
                    1999                                            40,409
                    2000                                            37,614
                    2001                                            17,306
                                                                  --------
                                                                  $146,988
                                                                  ========
<PAGE>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued


(4)    Shareholders' Equity
       During 1997 and 1996,  5,500 and 22,600  shares of the  Company's  common
          stock were  issued  upon  exercise  of stock  options  for $13,676 and
          $19,038,  respectively.  In  addition,  during  1997 and 1996,  10,000
          shares of  common  stock  were  issued to the  Company's  Chairman  as
          compensation   and  valued  in  the  amount  of  $70,000  and  $47,501
          respectively. During 1996, 999 shares of common stock held in treasury
          were issued as  compensation  to other  individuals  and valued in the
          amount of $4,995.

       Also, during  1997,  the Company  issued  10,000  warrants at an exercise
          price of $9.125 to an outside consultant, that resulted in a charge to
          earnings   in  the   amount  of  $10,626   using  the  Black   Scholes
          option-pricing model.

       (a)Amended and Restated Stock Option Plan
            The Company's Amended and Restated Stock Option Plan was established
                in 1971  authorizing  100,000 shares for option  grants.  During
                1991,  the  shareholders  approved  an  amendment  to the  plan,
                authorizing  400,000 shares for option  grants.  Under the plan,
                options to purchase  common  shares may be granted to directors,
                officers and other key employees of the Company, and such shares
                may be authorized and unissued shares,  or issued and reacquired
                shares,  as  determined  by the Board of  Directors.  The option
                price per share may not be less than the fair market  value of a
                share of common stock on the date the option is granted, and the
                maximum  term of an option may not  exceed  ten  years.  Options
                granted under the plan  generally are  exercisable  20% per year
                beginning one year from the date of grant. During 1997 and 1996,
                the  Company  granted  options  for 10,715  and  38,182  shares,
                respectively, under this plan.

            At  December 31, 1997 and 1996, the Company has reserved 319,691 and
                316,976  shares,  respectively,  of its  common  stock  for  the
                exercise of stock  options under this plan, of which 278,634 and
                246,285   shares,    respectively,    were   exercisable.    The
                weighted-average  exercise  price  per  share of  those  options
                exercisable  under this plan was $3.28 and $3.14 at December 31,
                1997 and 1996, respectively.

       (b)1996 Incentive Compensation Plan
            During 1996,  the Company  adopted a stock award and incentive  plan
                that   permits  the  issuance  of   incentive   stock   options,
                non-qualified  stock options,  stock appreciation  rights (SARS)
                and restricted stock awards to selected directors,  officers and
                key employees of the Company,  and such shares may be authorized
                and  unissued  shares,  or  issued  and  reacquired  shares,  as
                determined by the Board of Directors. The plan allows grants for
                options on 300,000  shares of common stock and provides that the
                term of each award be  determined  by the Committee of the Board
                of Directors  ("Committee") charged with administering the plan,
                but cannot exceed 10 years.
<PAGE>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued

            Under  the  terms  of  the  plan,  options  granted  may  be  either
                non-qualified or incentive stock options and the exercise price,
                determined  by the  Committee,  may not be less  than  the  fair
                market  value of a share of  common  stock on the date of grant.
                SARS,  and  SARS  granted  in  tandem  with  options,  shall  be
                exercisable  only  to the  extent  the  underlying  options  are
                exercisable,  and in no event less than six months from the date
                of grant,  and the grant  price  shall be equal to the  exercise
                price of the underlying options. In addition,  the Committee may
                grant  restricted  stock to participants of the plan at no cost.
                Other than the restrictions  that limit the sale and transfer of
                these  shares,  participants  are  entitled  to all  rights of a
                shareholder. During 1997 and 1996, the Company granted incentive
                stock options for 57,785 and 24,000 shares, respectively,  under
                this plan.

            At  December 31, 1997 and 1996, the Company has reserved  81,785 and
                24,000  shares,  respectively,  of  its  common  stock  for  the
                exercise  of  options  under  this  plan of which  11,943  and 0
                shares,  respectively,  were  exercisable.  The weighted average
                exercise price per share of those options exercisable under this
                plan was $6.26 at December 31, 1997.

       (c)Plans for Non-Employee Directors
            During 1996, the Company adopted a  non-qualified  stock option plan
                for the benefit of all  directors  who are not  employees of the
                Company. The plan allows grants for options on 100,000 shares of
                common  stock and such  shares may be  authorized  and  unissued
                shares,  or issued and  reacquired  shares,  as  determined by a
                committee of the Board of Directors  comprised of  disinterested
                directors.

            The option  price per  share  may not be less  than the fair  market
                value of a share of  common  stock  on the  date the  option  is
                granted , and the  maximum  term of an option may not exceed ten
                years.  Options granted under the plan shall become  exercisable
                in full one year from the date of grant.  During  1997 and 1996,
                the Company granted 5,856 and 9,090 shares, respectively,  under
                this plan.

            At  December 31, 1997 and 1996, the Company has reserved  14,946 and
                9,090 shares, respectively, of its common stock for the exercise
                of  options   under  this  plan  of  which  9,090   shares  were
                exercisable at December 31, 1997.

            In  addition,  during 1996,  the Company  established  a stock grant
                plan for non-employee  directors that entitles each non-employee
                director  to  receive a stock  grant  equivalent  to  $10,000 on
                September  1st of each year  following  election to the Board of
                Directors.  The  grant is in lieu of all cash  compensation  for
                their  participation  on the Board of  Directors.  For the years
                ended December 31, 1997 and 1996, the Company  granted 6,576 and
                9,755  shares of common  stock,  the  equivalent  of $60,006 and
                $50,000,  respectively,  which has been  recognized  as non-cash
                compensation expense in the accompanying consolidated statements
                of income.
<PAGE>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued

            The following  tables  summarize,  by date of grant,  the  number of
                options and warrants  issued and the  exercise  price per share.
                Options are  generally  exercisable  20% per year  beginning one
                year from date of grant and expire ten years from date of grant:


        Date of Grant              Number of Options Issued       Option Price
        -------------              ------------------------       ------------

            June           1988           22,500                   $  0.9375

            May            1990           19,000                   $  2.3750

            July           1991           16,500                   $  1.4375

            July           1992           30,000                   $  2.8750

            April          1993           47,000                   $  2.6250

            May            1994           41,000                   $  2.3750

            May            1995           48,500                   $  3.0000

            May            1995          100,000 (a)               $  2.8500

            December       1995           14,544 (b)               $  5.5000

            May            1996           23,182 (a)               $  5.2500

            July           1996           36,500                   $  5.1300

            September      1996            2,500                   $  5.3750

            December       1996           9,090  (b)               $  5.5000

            March          1997           34,000                   $  6.5000

            May            1997           25,000 (a)               $  7.0000

            October        1997            9,500                   $ 10.6250

            December       1997           5,856  (b)               $ 10.2500


            (a)  Exercisable 50% at date of grant and 50% one year from the date
            of grant.

            (b) Exercisable in full one year from the date of grant.

             Date of Grant     Number of Warrants Issued        Warrant Price

             September 1997         10,000 (c)                  $    9.1250

            (c) Exercisable 100% at date of grant.
<PAGE>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued

       The following table summarizes stock option  transactions during 1997 and
       1996:
<TABLE>
<CAPTION>
                                                                                         Weighted-average
                                                                 Option shares       exercise price per share
                                                                 -------------       ------------------------
<S>                                                             <C>                        <C>
                Balance at December 31, 1995                        304,894                $   2.70


                Options granted                                      71,272                    5.22

                Options exercised                                   (22,600)                   0.84

                Options expired                                      (3,500)                   2.45
                                                                -----------

                Balance at December 31, 1996                        350,066                    3.34

                Options granted                                      74,356                    7.49

                Options exercised                                    (5,500)                   2.49

                Options expired                                      (2,500)                   2.62
                                                                -----------

                Balance at December 31, 1997                        416,422                    4.09
                                                                ===========
</TABLE>
       The  following  table  summarizes  those stock  options  outstanding  and
       exercisable at December 31, 1997:
<TABLE>
<CAPTION>
                                                                              Weighted-
                                                                 Weighted-     average                    Weighted-
                                                                  average     remaining                    average
                                                  Shares         exercise    contractual     Shares       exercise
       Range option exercise price              outstanding        price        life       exercisable      price
       ---------------------------              -----------        -----        ----       -----------      -----
<S>                                            <C>             <C>           <C>          <C>             <C>
       $    0.9375    -     1.4375                  10,750     $    1.40     3.3 years         10,750     $   1.40
            2.3750    -     3.0000                 245,500          2.77     6.7 years        209,800         2.78
            5.1300    -     7.0000                 144,816          5.86     8.8 years         79,117         5.57
           10.2500    -    10.6250                  15,356         10.48     9.9 years             -           -
                                               -----------                                -----------
                                                   416,422                                    299,667
                                               ===========                                ===========
</TABLE>
<PAGE>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued

       The per share weighted-average fair value of stock options granted during
          1997 and 1996 was  $4.48  and  $3.22 on the  dates of grant  using the
          Black Scholes option-pricing model with the following weighted-average
          assumptions:  1997 - expected dividend yield of 0%, risk-free interest
          rate of approximately  6.5%,  volatility of approximately  35%, and an
          expected  life of 10 years;  1996 -  expected  dividend  yield  of 0%,
          risk-free   interest  rate  of  approximately   6.5%,   volatility  of
          approximately 37%, and an expected life of 10 years.

       The Company applies APB Opinion No. 25 in accounting for its stock option
          plans and,  accordingly,  no compensation cost has been recognized for
          its stock  options  in the  accompanying  consolidated  statements  of
          income. Had the Company determined compensation cost based on the fair
          value at the grant date for its stock  options under SFAS No. 123, the
          Company's  net income and  related per share  amounts  would have been
          reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
                                                    1997                1996
                                              ---------------       ------------
<S>                                           <C>                   <C>
Net income:
     As reported                              $     1,960,045          1,254,687
                                              ===============       ============

     Pro forma                                $     1,890,151          1,113,193
                                              ===============       ============
Per share amounts:
     Basic earnings per share
         As reported                          $           .46                .30
                                              ===============       ============
         Pro forma                            $           .45                .27
                                              ===============       ============

     Diluted earnings per share
         As reported                          $           .44                .29
                                              ===============       ============
         Pro forma                            $           .43                .26
                                              ===============       ============
</TABLE>
       Pro forma net income and earnings per share  reflect only options granted
          after  January  1, 1995.  Therefore,  the full  impact of  calculating
          compensation  cost  for  stock  options  under  SFAS  No.  123  is not
          reflected  in  the  pro  forma   amounts   presented   above   because
          compensation  cost is  reflected  over the options'  vesting  periods,
          generally five years, and compensation  cost for options granted prior
          to January 1, 1995 is not considered.
<PAGE>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued

(5)    Income Taxes
       Income  tax  expense  for the  years  ended  December  31,  1997 and 1996
        consists of:
<TABLE>
<CAPTION>
                                                1997                    1996
                                            -----------             -----------
<S>                                         <C>                     <C>
Current:
     Federal                                $ 1,275,647                 958,044
     State                                      119,992                  80,000
                                            -----------             -----------
                                              1,395,639               1,038,044
Deferred                                       (191,739)               (271,539)
                                            -----------             -----------
                                            $ 1,203,900                 766,505
                                            ===========             ===========

</TABLE>
       The following  table reconciles  the  expected tax expense at the Federal
          statutory rate to the effective tax rate.
<TABLE>
<CAPTION>

                                                     1997                        1996
                                        ------------------------     ------------------------
                                            Amount           %           Amount           %
                                        -----------         ----     -----------         ----
<S>                                     <C>                 <C>      <C>                 <C>
Computed expected tax expense           $ 1,075,741         34.0%    $   687,205         34.0%
State taxes, net of Federal benefit          79,195          2.5          52,800          2.6
Research and experimentation credit         (13,826)        (0.4)         (6,600)        (0.3)
Loss (income) of foreign subsidiary         (20,820)        (0.7)         12,881          0.6
Nondeductible expenses                       23,943          0.8          15,247          0.8
Other                                        59,667          1.9           4,972          0.2
                                        -----------         ----     -----------         ----
                                        $ 1,203,900         38.1%    $   766,505         37.9%
                                        ===========         ====     ===========         ====
</TABLE>
<PAGE>
                          ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued

       For the year ended December 31, 1997, the deferred  income tax benefit of
          $191,739  results from the changes in temporary  differences.  The tax
          effects of temporary differences that give rise to deferred tax assets
          and deferred  tax  liabilities  as of December 31, 1997 are  presented
          below:
<TABLE>
<CAPTION>
<S>                                                                                 <C>
              Deferred tax assets:
                  Accounts receivable, due to allowance for
                     doubtful accounts                                              $       36,374
                  Inventories, principally due to additional costs
                     inventoried for tax purposes pursuant to the Tax Reform
                     Act of 1986 and inventory reserves                                     80,405
                  Warranty accrual                                                         107,100
                  Pension settlement                                                        16,421
                  Deferred compensation                                                    324,166
                  Property, plant and equipment, due to differences in
                     depreciation lives and methods                                          1,031
                                                                                      ------------
                         Total gross deferred tax assets                                   565,497
                         Less valuation allowance                                               -
                                                                                      ------------
                                                                                           565,497
              Deferred tax liability:
                 Prepaid expenses                                                          (11,334)
                                                                                      ------------
                          Net deferred tax asset                                    $      554,163
                                                                                      ============
</TABLE>

       At December 31,  1996,  the net deferred tax asset was $362,424 and there
          was no recorded valuation allowance.

       At December  31,  1997,  the  Company has New York State  investment  tax
          credit carryforwards of approximately $20,000.

       In assessing  the  realizability  of  deferred  tax  assets,   management
          considers  whether it is more likely than not that some portion or all
          of the  deferred  tax  assets  will  not  be  realized.  The  ultimate
          realization of deferred tax assets is dependent upon the generation of
          future  taxable  income  during the periods in which  those  temporary
          differences  become  deductible.  Management  considers  the projected
          future  taxable  income  and  tax  planning  strategies,  as  well  as
          carryback opportunities,  in making this assessment. In order to fully
          realize the net deferred tax asset,  the Company will need to generate
          future taxable income of approximately $1,600,000. For the years ended
          December 31, 1997 and 1996, the Company's  Federal  taxable income was
          approximately $3,300,000 and $2,600,000,  respectively. Based upon the
          level of historical  taxable  income,  projections  for future taxable
          income  and  carryback  opportunities  over the  periods  in which the
          deferred  tax assets are  deductible,  management  believes it is more
          likely  than  not the  Company  will  realize  the  benefits  of these
          deductible   differences.   The  amount  of  the  deferred  tax  asset
          considered  realizable,  however, could be reduced in the near term if
          estimates of future taxable income are reduced.
<PAGE>
                          ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued

       At December  31,  1997,  $228,966 of deferred  tax assets are included in
other current assets.

(6)    Employee Benefit Plans
       (a)Retirement and Profit Sharing Plans
            During 1997,  the Company  terminated its  non-contributory  defined
                benefit  pension plan and all eligible  employees  were provided
                with the opportunity to receive a lump-sum payment, rollover the
                amount available to their respective 401(k) participant  account
                or have an annuity purchased on their behalf. As a result of the
                termination, the Company realized a gain of $63,000.

            Net  periodic  pension  cost for the year ended  December  31,  1996
included the following components:

                  Service cost - benefits earned during
                      the period                               $    143,561
                  Interest cost on projected benefit
                      obligation                                     94,985
                  Actual return on plan assets                      (40,671)
                  Net amortization and deferral                       1,247
                                                                 ----------
                      Net periodic pension cost                $    199,122
                                                                 ==========

            Assumptions  used in accounting  for the pension plan as of December
31, 1996 were:

                  Discount rate                                            7.25%
                  Rate of increase in compensation levels                  6.00%
                  Expected long-term rate of return on assets              8.00%


            During 1992,  the Company  established a 401(k) savings plan that is
                available  to  all  employees   who  meet  certain   eligibility
                requirements. The Company does not contribute to this plan as of
                December 31, 1997.

       (b)Deferred Compensation Plans
              (i) Growth Performance Sharing
                  During  1996,  the Company  established  a Growth  Performance
                  Sharing   ("GPS")  plan  for  all   employees   based  on  the
                  achievement of certain  objectives  that include sales growth,
                  profit growth and return on assets.  During 1997 and 1996, the
                  Company  recorded  $447,284  and  $357,126,  respectively,  of
                  expense  under  the GPS plan,  and at  December  31,  1997 the
                  unpaid  portion,  in the amount of  $272,792,  is  included in
                  accrued  payroll and related  costs in the  accompanying  1997
                  consolidated balance sheet.
<PAGE>
                          ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued

              (ii) Deferred Compensation Plan
                  Effective  January 1, 1996,  the Company  adopted the Deferred
                  Compensation  Plan  for  Certain   Executive   Employees  (the
                  "Plan"),  which is a non-qualified  deferred compensation plan
                  for  a  select  group  of  management  and  highly-compensated
                  employees.  The  purpose  of the  Plan is to  permit  eligible
                  employees  to defer the  receipt  of up to 75% of  future  GPS
                  bonuses,  to have the deferred GPS bonuses  applied to acquire
                  shares of common stock, and to have the shares  distributed at
                  a future date  selected by the employee  or, if earlier,  upon
                  the employee's  involuntary  termination  of  employment.  The
                  Company  will match an  additional  amount equal to 25% of the
                  deferred GPS bonus.

                  During 1997, the Company issued 65,681 shares of common stock,
                  with a cost of $369,461,  to a rabbi trust for distribution to
                  the  participating  employees  at such time as elected.  Those
                  shares placed in the trust have been accounted for as treasury
                  shares by the Company and there is no additional  compensation
                  expense   recorded  for   appreciation   in  share  value.  As
                  originally  elected,  one employee  received a distribution of
                  5,363 shares of common stock from treasury.

                  During  1997 and  1996,  the  Company  recorded  $614,135  and
                  $369,461, respectively, of expense under the Plan.

(7)    Fair Value of Financial Instruments
      The following methods and assumptions were used to estimate the fair value
          of each class of financial instruments:

       (a)  Cash and Cash  Equivalents,  Accounts  Receivable,  Book  Overdraft,
             Accounts  Payable,  Income Taxes Payable and Accrued Expenses
            The carrying   amount  of  cash  and  cash   equivalents,   accounts
                receivable,  accounts payable and accrued expenses  approximates
                fair value because of the short maturity of these instruments.

       (b)Long-term Debt
            The interest rate on the Company's  long-term  debt is  periodically
                reset  according  to changes  in the bank's  prime rate which is
                reflective of current  market rates (see note 2).  Consequently,
                the  carrying  value of the  long-term  debt  approximates  fair
                value.

(8)    Industry Segment Information
       The Company's operations  consist of two segments that are concerned with
          the development,  production and marketing of products.  Sewer Systems
          consists of products  designed to transport and treat  sanitary  sewer
          waste.  Operations  of  the  Detection  Systems  segment  include  the
          production  and sale of  products  designed to protect  equipment  and
          facilities  and until January 1996 included the production and sale of
          the Cirrus IFD product line as  discussed in note 1(a).  For the years
          ended December 31, 1996 and 1997, the revenue,  income from operations
          and total assets specifically attributable to the Cirrus IFD product
<PAGE>
                          ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued

          line  have  been  recorded  within  Corporate  due to the sale of this
          product  line.  Also,  during  1996 the Company  established  a Growth
          Performance  Sharing plan, as discussed in note 6(b), that is based on
          the Company's achievement of certain objectives. The expenses recorded
          by the Company under this plan have been  presented  within  Corporate
          because such expenses are based upon the performance of the Company as
          a whole. Total revenue includes sales to unaffiliated customers; there
          are no intersegment sales.
<TABLE>
<CAPTION>
                                Sales to unaffiliated customers                    Income (loss) from operations
                                -------------------------------                    -----------------------------
                                     1997            1996                            1997             1996
                                     ----            ----                            ----             ----
<S>                          <C>                <C>                               <C>            <C>
       Sewer Systems         $     21,196,777       18,724,259                       2,997,062       2,237,321
       Detection Systems            2,652,961        1,893,907                       1,156,718         463,638
       Corporate                      480,983          918,264                        (939,164)       (494,053)
                               --------------   --------------                    ------------   -------------
         Total               $     24,330,721       21,536,430                       3,214,616       2,206,906
                               ==============   ==============                    ============   =============

<CAPTION>
                                         Total assets
                             ---------------------------------
                                     1997             1996
                                     ----             ----
<S>                          <C>                <C>
       Sewer Systems         $     8,939,881         8,728,565
       Detection Systems           1,324,173           999,135
       Corporate                   3,828,184         1,517,974
                               -------------    --------------
         Total               $    14,092,238        11,245,674
                               =============    ==============
<CAPTION>
                                                        Property, plant and equipment
                                ------------------------------------------------------------------------------
                                             Additions                           Depreciation and amortization
                                -------------------------------                  -----------------------------
                                       1997           1996                           1997           1996
                                       ----           ----                           ----           ----
<S>                             <C>               <C>                             <C>            <C>
       Sewer Systems            $       220,623         319,050                       440,129        441,867
       Detection Systems                  9,630          29,800                        43,511         47,568
       Corporate                        214,407          54,918                        74,192         74,170
                                  -------------   -------------                   -----------    -----------
         Total                  $       444,660         403,768                       557,832        563,605
                                  =============   =============                   ===========    ===========
</TABLE>
<PAGE>
                          ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued

<TABLE>
<CAPTION>
                               Amortization and abandonment
                                     of intangible assets
                               ----------------------------
                                     1997           1996
                                     ----           ----
<S>                             <C>              <C>
       Sewer Systems            $    69,666          32,688
       Detection systems                 -               -
                                  ---------      ---------
           Total                $    69,666          32,688
                                  =========      ==========
</TABLE>
       Export sales of low pressure  sewer systems were  approximately  6.1% and
          2.8% of total  Company  sales in 1997 and 1996,  respectively.  Export
          sales of detection  instruments  were  approximately  6.3% and 4.5% of
          total Company sales in 1997 and 1996, respectively.

(9)    Business and Credit Concentrations
       (a)Concentration of Credit Risk and Sales to Major Customers
            Financial  instruments  which  potentially  subject the Company to a
                concentration  of  credit  risk  principally  consist  of  trade
                receivables.  The Company sells products to customers  primarily
                in the United  States.  At  December  31,  1997 and 1996,  eight
                customers comprised approximately 49% and 43%, respectively,  of
                trade  accounts  receivable.  To reduce credit risk, the Company
                performs  ongoing credit  evaluations of customers but generally
                does not  require  collateral.  Allowances  are  maintained  for
                potential  credit  losses,  and such  losses  have  been  within
                management's expectations.

            During  1997  and   1996,   sales  to  eight   customers   comprised
                approximately  42%  and  36%,  respectively,  of  the  Company's
                consolidated  net sales. No individual  customer  comprised more
                than 10% of consolidated net sales in 1997 and 1996.

       (b)Concentration of Purchasing Risk
            During  both  1997  and  1996,  approximately  52% of the  Company's
                purchases  were  made from ten  vendors.  No  individual  vendor
                comprised more than 10% of total purchases in 1997 and 1996.

(10)   Contingent Liabilities
       During  1997,  an  action  was  brought  against  the  Company  based  on
          allegations of  misrepresentation  and breach of contract  relating to
          the Company's termination of its relationship with Abaxial Associates,
          Inc. (the  "plaintiff").  The plaintiff seeks monetary  damages in the
          amount of $1,600,000  (CDN), plus interest and certain other costs. In
          the opinion of management,  the plaintiff's business relationship with
          the Company was terminated for cause and the claim is  unsubstantiated
          and without merit.  Although no assurances can be given, the Company's
          management  believes the ultimate  outcome of this allegation will not
          have a material adverse affect on the financial position or results of
          operations of the Company.
<PAGE>
                          ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

              Notes to Consolidated Financial Statements, Continued

(11)   Subsequent Event
       On February 24, 1998,  the Company  entered into an Agreement and Plan of
          Merger  (the  "Agreement")  with  Precision  Castparts  Corp.  and EOC
          Acquisition Corporation providing for the acquisition,  subject to the
          terms and conditions of the Agreement,  by Precision  Castparts Corp.,
          through its wholly-owned  subsidiary EOC Acquisition  Corporation,  of
          all the outstanding shares, including all options and warrants (vested
          and unvested),  of common stock of the Company for $15.25 per share in
          cash,  net of the  exercise  price  in the  case  of all  options  and
          warrants. Under the terms and conditions of the Agreement, the Company
          will be the surviving  corporation  and a  wholly-owned  subsidiary of
          Precision Castparts Corp.

       As a result of the Company's  acceptance  of the terms and  conditions of
          the  Agreement,  the  Company  will  be  required  to pay  an  outside
          consultant  a  transaction  fee,  contingent  on  the  closing  of the
          aforementioned  transaction,  of approximately  $800,000. In addition,
          the Company has agreed to  indemnify  the outside  consultant  against
          certain liabilities, if any.

       Additionally,  as a result of the  Company's  acceptance of the terms and
          conditions of the  Agreement,  the Company will be required  under the
          conditions of a Change in Control  Agreement dated January 5, 1998, to
          pay the Company's  Chairman  approximately  $350,000,  plus a prorated
          portion of any 1998 bonus  amount to which he is entitled.  Also,  the
          Company has agreed to waive any required health insurance premium that
          would be due from the Chairman for a twelve-month period following his
          termination.

       In addition,  pursuant to the  Agreement,  the  Company has entered  into
          certain other ancillary  agreements with specific directors,  officers
          and key employees of the Company. These agreements are as follows:

            (i)   The Company  entered  into  employment  agreements  with eight
                  named officers and employees for periods of one to two years.

            (ii)  The Company entered into a stockholder  agreement with certain
                  named  directors,  officers and  employees,  under which those
                  individuals  agreed to tender all of their respective  shares,
                  including all options  (vested and unvested),  of common stock
                  so long as the offer  price is not less than  $15.25 per share
                  in cash.

<PAGE>

                           Environment One Corporation
                                   Form 10-KSB
                                Part II (con't.)

Item 8.  Changes In and Disagreements With Accountants on Accounting and
         Financial  Disclosure

                                      None

                           Environment One Corporation
                                   Form 10-KSB
                                    Part III

Item 9.  Directors and Executive Officers of the Company

                                                  Date
   Name                      Position         Office Began           Age
   ----                      --------         ------------           ---

Walter W. Aker               Director         Dec 1968               79

Mark E. Alexander            Vice President   January 1998           41

John L. Allen                Director         May 1993               54

Stephen V. Ardia             Chairman         May 1995               56
                             President, CEO   Sept 1996

David M. Doin                Vice President   Sept 1991              42

Angelo Dounoucos             Director         May 1988               65
                             President, CEO   Retired, Sept 1996

Lars Grenback                Director         May 1993               54

Robert G. James              Director         May 1984               73

Rolf E. Soderstrom           Director         May 1991               65

Philip W. Welsh              Vice President   May 1995               40
                             Treasurer, CFO

All executive  officers of the Corporation are included in the preceding  table.
Executive  officers  serve  until the Board of  Directors'  meeting  immediately
following  the Annual  Meeting of  Shareholders  or until their  successors  are
elected.

Directors  elected at the Company's  Annual  Meeting serve until the next Annual
Meeting.  All of the above  directors  were elected by the  Shareholders  at the
Annual Meeting held May 15, 1997.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part III (con't.)

Business Experience During the Past Five Years:

Walter W. Aker
He was vice president of the Company from 1968 to 1975 and from 1982 to 1993. He
was elected corporate secretary from 1976 to 1993.

Mark E. Alexander
He was  appointed  vice  president of marketing in January,  1998.  He began his
career with Environment One in January,  1990 as a regional sales manager in the
Sewer Systems Business. He was promoted to national sales manager in 1994 and to
director of marketing in 1995.  He earned his master of business  administration
in 1995 from Pepperdine University.

John L. Allen
He is managing partner for the Financial Services Practice,  North America,  for
Heidrick & Struggles, Inc., a global executive search firm. He is located in the
New York, NY office and is also a director of the firm. Prior to his joining the
firm in 1991, he had 24 years in banking  including  nearly  thirteen as a chief
executive officer of Amoskeag Bank Shares, Inc. and Key Bank of Southeastern New
York.  He has a  bachelor  of science  degree in  business  administration  from
Rochester  Institute of Technology,  a master of public  administration from the
Graduate School of Public Affairs,  State  University of New York (SUNY) Albany,
and  is a  graduate  of the  Harvard  Business  School  Program  for  Management
Development.

Stephen V. Ardia
He was elected  president and chief  executive  officer on September 1, 1996. He
received his master of business  administration  from Rutgers  University  and a
bachelor of science degree from the U.S. Merchant Marine Academy.  After working
with Goulds Pumps,  Inc. since 1965, he became its president in 1985. He retired
in 1994  joining  Environment  One  Corporation  as  chairman in May,  1995.  He
presently  serves as a member of the board of  directors  of MaxTec  Holdings of
Dallas, Texas.

David M. Doin
He was elected vice president in September,  1991 and also served as the general
manager  of the  Detection  Systems  Business  until  January,  1998 when he was
appointed vice president of sales. He received his bachelor of science degree in
business from the State  University of New York at Albany in 1983. He joined the
Company in 1977 in Measurement Services sales and was appointed product manager,
Scientific Instruments, in 1981.

Angelo Dounoucos
He was vice president and director of Environment One  Corporation  from 1969 to
1976.  He rejoined the Company in 1986 after eight years as a project  marketing
manager at the General Electric  Corporate  Research and Development  Center. He
was elected  president on January 1, 1989 and chief  executive  officer on March
14, 1990.  He retired as president and chief  executive  officer on September 1,
1996.

Lars Grenback
He received his bachelor of economics  and business  administration  degree from
Uppsala University,  Sweden in 1969 and his university certificate in marketing,
advertising and public  relations in 1970.  Since 1975, he has been working with
the low  pressure  sewer  system  in the  Scandinavian  countries  and has  been
president of Svensk Kommunalteknik AB since 1980.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part III (con't.)

  Business Experience of Executive Officers During the Past Five Years (con't.)

Robert G. James
He received his bachelor of science  degree from  Northwestern  University,  his
master's degree in business  administration from Harvard Business School in 1948
and his doctorate in economics from the Harvard  Graduate  School in 1952. He is
vice chairman of Enterprise  Asset Management Inc. He is also a Certified Public
Accountant.

Rolf E. Soderstrom
He received his bachelor of science degree in engineering  from Tufts University
and his master's degree from Northeastern  University.  He has thirty-five years
of line  management  experience as vice  president of Motorola,  executive  vice
president of Codex  Corporation  and  assistant  general  manager of the Systems
Division of the Foxboro Company.  He is president of the TCS Group, a management
consulting  firm;  director of AG-BAG  International  Limited,  a farm equipment
supplier, a director of Walpole  Massachusetts  Cooperative Bank; and a managing
director of the Nassau Group, a private investment banking company.

Philip W. Welsh
He was elected treasurer in May, 1995 and was appointed vice president and chief
financial  officer in January,  1998.  Prior to  January,  1998 he served as the
director of finance. He received his bachelor of science degree in business from
the   Pennsylvania   State  University  in  1979  and  his  master  of  business
administration  from the  California  State  University  at Long  Beach in 1987.
Before joining the Company in 1992, he had worked for Hughes Aircraft Company in
Los Angeles, California as a finance and accounting manager.

               Compliance with Section 16(a) of the Exchange Act

The Company believes that all directors,  executive officers and holders of more
than 10% of the  Company's  common stock  complied with all Section 16(a) filing
requirements  in the  fiscal  year  ended  December  31,  1997,  except  for the
following: Mr. Dounoucos filed a late Form 5 with respect to one transaction and
failed  to  include  on his  Form 5 an  additional  transaction,  each of  which
occurred in 1997 under stock-based compensation plans maintained by the Company
for  non-employee  directors;  Mr.  Grenback did not file a required Form 4 with
respect to three  transactions  occurring in 1997;  and each of Messrs.  Allen,
Aker, Grenback, James and Soderstrom failed to file a Form 5 with respect to two
transactions under stock-based  compensation plans maintained by the Company for
non-employee directors.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part III (con't.)

Item 10. Executive Compensation

Compensation of Executive Officers

The following table sets forth information  concerning  compensation paid by the
Company to (i) all persons who served as chief executive  officer of the Company
during 1997, and (ii) the other most highly compensated executive officers whose
annual salary and bonus during 1997 exceeded $100,000.
<TABLE>
<CAPTION>

                                                                                                 Long Term
                                                                                               Compensation
                                                    Annual Compensation                            Awards
                                     --------------------------------------------------           ---------
                                                                          Other Annual            Options/            All Other
Name and                             Salary              Bonus             Compensation              SARs             Compensation
Principal Position      Year            $                 ($)                  ($)                   (#)                ($) (1)
------------------      ----            -                 ---                  ---                   ---                -------
<S>                     <C>          <C>                <C>                   <C>                 <C>                  <C>

Stephen V. Ardia        1997         150,000            224,148               70,000                25,000              45,906
Chairman of the         1996          46,222            113,816               47,500                23,182              21,474
Board, President &      1995               0                  0               45,000               101,818                   0
CEO since 9/1/96

Mark E. Alexander       1997          91,250             81,817                                      6,000              16,758
Vice-President -        1996          79,232             37,575                                      4,000               7,172
Marketing               1995          60,000             35,906                                      6,000              16,000

David M. Doin           1997          79,100             59,103                                      5,000              12,107
Vice President -        1996          76,400             28,985                                      2,000               5,535
Sales                   1995          76,400             20,000                                      5,000                   0

George A. Earle         1997          77,851             48,030                                      4,000               9,534
Director of             1996          71,400             27,091                                      2,500               5,169
Engineering             1995          71,400             10,685                                      6,000                   0

Philip W. Welsh         1997          77,750             58,091                                      6,000              11,897
Vice President -        1996          71,000             26,936                                      4,000               5,141
Finance, Chief          1995          69,769              3,610                                      6,000                   0
Financial Officer,
Treasurer
</TABLE>


(1)      For 1997, represents the Corporation's  matching contribution under the
         Deferred   Compensation  Plan  for  Certain   Executive   Employees  of
         Environment One Corporation.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part III (con't.)

                         Executive Compensation (cont.):


Option Grants in Last Fiscal Year

The following  table  provides  further  information  on grants of stock options
pursuant  to the  Company's  Amended  and  Restated  Stock  Option Plan and 1996
Incentive  Compensation  Plan in fiscal year 1997,  with  respect to each of the
named executive officers in the Summary Compensation Table.
<TABLE>
<CAPTION>

                                     % of Total Options            Exercise or
                    Options         Granted to Employees            Base Price          Expiration
Name              Granted (#)          in Fiscal Year                  ($/Sh)             Date
----              -----------          --------------                  ------             ----
<S>                  <C>                    <C>                        <C>              <C>
S. Ardia             25,000                 36%                        $7.00            5/15/2007

M. Alexander          6,000                  9%                        $6.50            3/20/2007

D. Doin               5,000                  7%                        $6.50            3/20/2007

G. Earle              4,000                  6%                        $6.50            3/20/2007

P. Welsh              6,000                  9%                        $6.50            3/20/2007

</TABLE>

Aggregated Option Exercises in Last Fiscal Year and FY-End Option Value

The following table provides  information for the named executive  officers with
respect to (i) stock options  exercised in fiscal year 1997,  (ii) the number of
stock  options  held at the end of  fiscal  year  1997,  and  (iii) the value of
in-the-money stock options at the end of fiscal year 1997.
<TABLE>
<CAPTION>



                                                                Number of Unexercised           Value of Unexercised In-the-Money
                      Shares Acquired       Value               Options at 12/31/97                  Options at 12/31/97
Name                  On Exercise (#)     Realized ($)      Exercisable       Unexercisable       Exercisable      Unexercisable
----                  ---------------     ------------      -----------       -------------       -----------      -------------
<S>                         <C>             <C>              <C>                 <C>              <C>                  <C>
S. Ardia                    ---             ---              137,501             12,499           $939,549             $43,747

M. Alexander                ---             ---               12,200             15,800             93,421              92,309

D. Doin                     ---             ---               18,750             13,000            153,257              78,467

G. Earle                    ---             ---               15,100             11,400            122,275              67,725

P. Welsh                    ---             ---               11,000             15,000             83,571              85,909

</TABLE>
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part III (con't.)

                         Executive Compensation (cont.):

Employment Agreement and Change of Control Agreement with Mr. Ardia

The Company has entered into an Employment  Agreement with Mr. Ardia,  providing
for Mr.  Ardia  to  serve  as the  Company's  President  for a term of one  year
beginning on the date that the tender offer (the "Offer") of Precision Castparts
Corp.  ("PCC") and EOC Acquisition  Corporation (the "Purchaser") is consummated
(see Item 11),  after which his  employment may be continued on an at-will basis
by mutual agreement of the parties.  The agreement  provides that Mr. Ardia will
be paid a base salary at the annual rate of $150,000  (which is consistent  with
his current  salary  arrangements).  He will be entitled to  participate  in the
Company's  bonus plan through  December 31,  1998,  and in a similar  bonus plan
during the three month period  January 1, 1999 through March 28, 1999. Mr. Ardia
will also be entitled to  participate  in PCC's stock option and stock  purchase
programs,  in  accordance  with the  terms  of those  programs.  Mr.  Ardia  may
terminate the agreement upon thirty days' written notice to the Company any time
after the first three months of its effectiveness.

The Company also has a Change in Control  Agreement with Mr. Ardia dated January
5, 1998,  providing for a payment to Mr. Ardia upon the  occurrence of a "Change
of Control" (as defined in the agreement)  equal to (i) the amount of his annual
base salary in effect on the date of the Change of  Control,  and (ii) an amount
equal to the sum of (A) the bonus payable to Mr. Ardia for the year during which
the  Change  of  Control  occurs,  prorated  through  the date of the  Change of
Control,  plus  (b) the  average  annual  bonus  paid to Mr.  Ardia  for the two
complete  fiscal  years that  precede the fiscal year during which the Change of
Control occurs. In addition, the Company shall waive for twelve months following
his termination any required  premium payment due from Mr. Ardia to allow him to
continue  his  coverage  under the  Company's  group  health  plan. A "Change of
Control,"  as  defined  in the  agreement,  would  occur  upon  the  Purchaser's
acceptance  for payment  and payment for Shares  pursuant to the Offer (See Item
11).

Employment Agreements with Messrs. Alexander, Doin, Earle and Welsh

The Company  also has  entered  into  two-year  Employment  Agreements  with Mr.
Alexander  to serve as Vice  President of  Marketing;  Mr. Doin to serve as Vice
President,  General Manager; Mr. Earle to serve as Director of Engineering;  and
Mr. Welsh to serve as Vice President of Finance. These agreements provide for an
annual salary of $95,000 for Mr.  Alexander,  $90,000 for Mr. Doin,  $80,000 for
Mr. Earle,  and $80,000 for Mr. Welsh,  respectively  (which are consistent with
their current  salary  arrangements).  Each of the foregoing  employees  will be
entitled to participate in the Company's  bonus plan through  December 31, 1998,
and in a similar  bonus  program  for the three  month  period  January  1, 1999
through  March  28,  1999.  Thereafter,  any  bonus  program  provided  will  be
consistent with bonus programs provided by PCC to similarly situated  employees.
These  employees  will also be entitled to participate in PCC's stock option and
stock purchase programs, in accordance with the terms of those programs.

The  agreements,  which may be  terminated  by either  party upon  thirty  days'
written notice,  provide for a severance benefit equal to the following:  (i) if
the employee is terminated before the first anniversary of
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part III (con't.)



the effective  date of the  agreement,  the remaining  balance of the employee's
base salary for the portion of year from the date of termination until the first
anniversary of the effective  date, plus 100% of any calendar year 1998 bonus to
which the employee  would have been entitled had he or she remained  employed by
the Company through  December 31, 1998,  plus the Severance  Payment (as defined
below); or (ii) if the employee is terminated after the first anniversary of the
effective  date of the  agreement  and prior to the  second  anniversary  of the
effective date, ten months' pay at the employee's then current salary level (the
"Severance Payment").  In addition, the Company shall waive for the remainder of
the unexpired  term of the agreement any required  premium  payment due from the
employee  to allow  the  employee  to  continue  his or her  coverage  under the
Company's  group  health  plan.  The  employee is  ineligible  for the  payments
described in this paragraph if he or she  voluntarily  resigns or withdraws from
employment, is terminated for "cause" (as defined in the agreement),  terminates
employment as a result of the expiration of the term of the agreement,  breaches
certain  confidentiality  or  non-competition  provisions in the  agreement,  or
accepts reasonably comparable employment with an affiliate of PCC.

Compensation of Directors

As compensation  for attendance at Board and Committee  meetings,  directors who
are not employees of the Company  receive a stock grant on September 1st of each
year for a number of shares having an aggregate value of $10,000, based upon the
fair market value of the Company's  common stock at the close of business on the
date of grant.  In  addition,  non-employee  directors  receive a grant of stock
options  on the third  Tuesday of each  December.  Each such grant to a director
relates to a total  number of shares of the  Company's  common  stock  having an
aggregate  fair  market  value,  at the close of  business on the date of grant,
equal to  $10,000.  The  exercise  price of these  options  is fixed at the fair
market value of the Company's  common stock at the close of business on the date
of grant.  The Board of  Directors  believes  that this  equity-based  system of
compensation  is  beneficial  in that  it  more  closely  aligns  the  long-term
interests of directors with those of the Company's shareholders.

As a general  rule,  directors  who are  officers  or  employees  of the Company
receive no  compensation  for  attendance  at Board or Committee  meetings.  The
Company does have a Letter of  Understanding  with Mr. Ardia dated May 22, 1995,
providing  for Mr.  Ardia to serve as  Chairman  of the Board.  Pursuant to this
Letter of  Understanding,  Mr. Ardia received a grant of 10,000 shares of common
stock in 1997  having  an  aggregate  market  value  (on the date of  grant)  of
$70,000.  In  addition,  during  1997 Mr.  Ardia  received an option to purchase
25,000  shares of common  stock at an  exercise  price of $7.00 per  share,  the
market value on the date of grant.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part III (con't.)


Item 11. Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners

The  following  table sets  forth,  as of March 3, 1998,  the  ownership  of the
Company's  common  stock by any  person  who is known by the  Company  to be the
beneficial owner of more than five percent of the common stock.



   Name and Address                Amount and Nature             Percentage of
   of Beneficial Owner          of Beneficial Ownership       Outstanding Shares
   -------------------          -----------------------       ------------------

   Angelo Dounoucos                   243,528(a)                     5.60%
   720 St. Davids Lane
   Schenectady, NY   12309




   Robert and Ardis James             486,317(b)                    11.31%
   Foundation
   80 Ludlow Drive
   Chappaqua, NY   10514




   Cenith Partners L.P.               401,510(c)                     9.35%
   One Financial Center
   Boston, MA   02110


(a)      Includes 56,000 shares issuable upon exercise of stock options that are
         exercisable within 60 days of March 3, 1998, 60,000 shares held jointly
         with his wife and 7,300 shares held in his wife's IRA.

(b)      Includes  3,381 shares held by Robert G. James,  43,400  shares held in
         custodian  accounts for his  children,  and 3,636 shares  issuable upon
         exercise  of  currently  exercisable  stock  options  held by Robert G.
         James.

(c)      Includes  5,000  shares  held by Stephen G.  Rabinovitz,  sole  general
         partner of Cenith Partners L.P.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part III (con't.)


     Security Ownership of Certain Beneficial Owners and Management (cont.):

Security Ownership of Management

The  following  table sets  forth,  as of March 3, 1998,  the  ownership  of the
Company's  common  stock  by  each of the  Company's  current  directors,  named
executive officers and all directors and executive officers as a group.
<TABLE>
<CAPTION>
                                       Amount and Nature            Percentage of Outstanding
Name                             of Beneficial Ownership(a)(c)                Shares
----                             -----------------------------                ------
<S>                                      <C>                                  <C>
Walter W. Aker*                           189,377(b)                           4.40%

Lars G. Grenback*                         161,883(b)                           3.77%

John L. Allen*                               7,683                             0.18%

Stephen V. Ardia*+                        190,201(b)                           4.29%

Robert G. James*                          486,317(b)                          11.31%

Angelo Dounoucos*                         243,528(b)                           5.60%

Rolf E. Soderstrom*                        16,683(b)                           0.39%

Mark E. Alexander+                          14,008                             0.33%

David M. Doin+                              24,004                             0.56%

George A. Earle+                            21,094                             0.49%

Philip W. Welsh+                            17,225                             0.40%

All directors and executive              1,395,859(d)                         30.42%
officers as a group
</TABLE>

*  Director
+ Executive Officer

(a)      Includes all shares for which the named  individual  possessed  sole or
         shared voting or  investment  power,  even if beneficial  ownership has
         been disclaimed as to any of these shares by the named individual.

(b)      The listed  amounts  include  shares as to which certain  directors are
         beneficial  owners but not the sole  beneficial  owner as follows:  Mr.
         Aker's wife holds 15,000 shares; Mr. Ardia's wife holds 2,600 shares in
         an IRA; Mr.  Dounoucos's  wife holds 7,300 shares in an IRA, and 60,000
         shares jointly with Mr. Dounoucos;  Mr. Grenback is President of Svensk
         Kommunalteknik  AB, which holds 153,000 shares, and Mr. Grenback's wife
         holds 1,000 shares; 435,900 shares are held by the
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part III (con't.)

     Security Ownership of Certain Beneficial Owners and Management (cont.):

         Robert  and  Ardis  James  Foundation  and  43,400  shares  are held in
         custodian  accounts for Mr. James' children;  and Mr.  Soderstrom holds
         10,000 shares jointly with his wife.

(c)      Includes the following  shares which the individuals  have the right to
         acquire,  within 60 days of the record date,  through exercise of stock
         options  issued by the Company:  Mr. Aker - 3,636  shares,  Mr. Allen -
         3,636  shares,  Mr.  Ardia - 137,501  shares,  Mr.  Dounoucos  - 56,000
         shares,  Mr.  Grenback - 3,636 shares,  Mr. James - 3,636  shares,  Mr.
         Soderstrom - 3,636 shares,  Mr.  Alexander - 13,400 shares,  Mr. Doin -
         19,750 shares,  Mr. Earle - 15,900  shares,  Mr. Welsh - 12,200 shares.
         These shares are included in the total number of shares outstanding for
         the purpose of  calculating  the  percentage  ownership  of each of the
         foregoing  individuals and of the group as a whole,  but in calculating
         the percentage of each  individual,  the number of  outstanding  shares
         does not include options of other individuals listed in the table.

(d)      Includes  292,831  shares  issuable upon exercise of stock options that
         are exercisable within 60 days of March 3, 1998, and 728,200 shares for
         which certain directors and executive  officers are beneficial  owners,
         but not the sole  beneficial  owners,  as set  forth in note (b) above.

Changes in Control

The Company has  executed an  Agreement  and Plan of Merger dated as of February
24, 1998 (the "Merger Agreement") among the Company, the Purchaser, and PCC. The
Purchaser is a New York  corporation  and a wholly owned  subsidiary  of PCC, an
Oregon Corporation

Pursuant to the Merger Agreement,  among other things, the Purchaser commenced a
tender  offer on March 3, 1998 to  purchase  all of the issued  and  outstanding
shares of the  Company's  common  stock (the  "Shares") at a price of $15.25 per
Share,  net to the seller in cash,  as  described  in the  Purchaser's  Offer to
Purchase dated March 3, 1998 and the related Letter of Transmittal  (which Offer
to Purchase and related Letter of Transmittal  together constitute the "Offer").
The Offer is scheduled to expire at 12:00  midnight,  eastern  time,  on Monday,
March 30, 1998,  unless  extended.  The Offer is subject to, among other things,
the condition that a number of shares  representing not less than 66b percent of
all outstanding Shares on a fully diluted basis be validly tendered prior to the
expiration of the Offer and not withdrawn (the "Minimum Condition").  The Merger
Agreement  also  provides  for the  merger of the  Purchaser  with and in to the
Company (the  "Merger") as soon as  practicable  after the  consummation  of the
Offer.  Following the  consummation  of the Merger (the "Effective  Time"),  the
Company will be the surviving  corporation and a wholly owned subsidiary of PCC.
In the  Merger,  each Share  issued  and  outstanding  immediately  prior to the
Effective  Time (other than Shares held by PCC, the Purchaser or in the treasury
of the Company,  all of which will be canceled) will be converted into the right
to receive cash in the amount of $15.25.

The terms of the Merger  Agreement,  a summary  of the events  leading up to the
Offer and the execution of the Merger Agreement and other information concerning
the Offer and the  Merger  are  contained  in the Offer to  Purchase  and in the
Solicitation/Recommendation  Statement  on Schedule  14D-9 of the  Company  (the
"Schedule 14D-9") with respect to the Offer, which was filed with the Commission
on March 3, 1998. Certain other documents  (including the Merger Agreement) have
been filed with the  Commission  as Exhibits to the Tender  Offer  Statement  on
Schedule 14D-1 of the Purchaser and PCC and to the Schedule 14D-9.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part III (con't.)

Item 12. Certain Relationships and Related Transactions

The  Company  entered  into an  Agreement  and  Plan of  Merger  with  Precision
Castparts  Corp.  (PCC) on  February  24,  1998  that is  described  in Item 11.
Pursuant to that, Rolf E. Soderstrom,  who is a member of the Company's Board of
Directors, is also a managing director of The Nassau Group, Inc. ("Nassau"),  an
investment  banking firm.  Nassau has been retained by the Board of Directors to
act as a  financial  advisor to the  Company  with  respect to the Offer and the
Merger.  Pursuant to an engagement letter with Nassau,  the Company (i) has paid
Nassau a monthly cash  retainer of $5,000  beginning  on September  15, 1997 and
continuing  on the  15th day of each  succeeding  month  during  the  period  of
Nassau's  engagement;  (ii) has  issued to Nassau a warrant to  purchase  10,000
Shares  exercisable  within three years of September  22, 1997,  the date of the
engagement letter, at an exercise price equal to the closing price of a Share on
September 22, 1997 ($9.125);  and (iii) will pay a transaction  fee to Nassau in
the amount of 1.1% or the aggregate  consideration in a transaction resulting in
a sale of the Company  (approximately  $804,000  based upon the $15.25 per Share
Offer Price and the existence of certain long-term  indebtedness of the Company)
less 50% of the total cash retainer previously paid (the "Transaction Fee"). The
Transaction  Fee is contingent  upon closing of such a transaction.  The Company
has also agreed to indemnify  Nassau and certain related parties against certain
liabilities, including liabilities under the federal securities laws.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part III (con't.)

Item 13. Exhibits and Reports on Form 8-K

Exhibits

2.1  Agreement  and Plan of Merger  dated as of  February  24,  1998  among PCC,
Purchaser  and the Company,  previously  filed March 3, 1998 as Exhibit 1 to the
Company's   Solicitation/Recommendation   Statement  on  Form  14D-9  (File  No.
5-35464), and incorporated by reference.

3.1  Registrant's  Certificate of  Incorporation,  as amended,  incorporated  by
reference  to Exhibit  3.1 to Form 10-Q  Report for the period  ending  6/30/88.
(File No. 1-7037)

3.2 Registrant's  by-laws, as amended,  incorporated by reference to Exhibit 3.2
to Form 10-Q Report for the period ending 6/30/88. (File No. 1-7037)

3.3 Registrant's amendment to Certificate of Incorporation.

4.1 Specimen of Registrant's Common Stock Certificate  incorporated by reference
to Exhibit 4.0 of Registration Statement. (File No. 2-38321)

4.2  $2,500,000  Secured  Working  Capital  Revolving  Line of Credit Loan dated
August 19, 1992 between the Registrant  and Fleet Bank of New York  incorporated
by reference to previously filed Form 10-KSB.

4.3 $3,000,000  Loan and Security  Agreement dated December 30, 1992 between the
Registrant  and Fleet Bank of New York  incorporated  by reference to previously
filed Form 10-KSB.

4.4 Note and Secured Revolving Line of Credit Agreement  Modification  Agreement
No. 2 dated March 20, 1995  between  the  Registrant  and Fleet Bank of New York
incorporated by reference to previously filed Form 10-KSB.

4.5 Note and Loan and  Security  Agreement  Modification  Agreement  No. 2 dated
March 20, 1995 between the Registrant and Fleet Bank of New York incorporated by
reference to previously filed Form 10-KSB.

4.6 Note and Secured Revolving Line of Credit Agreement  Modification  Agreement
No. 3 dated March 30, 1995  between  the  Registrant  and Fleet Bank of New York
incorporated by reference to previously filed Form 10-KSB.

4.7 Note and Loan and  Security  Agreement  Modification  Agreement  No. 3 dated
March 30, 1995 between the Registrant and Fleet Bank of New York incorporated by
reference to previously filed Form 10-KSB.

4.8 Note and Secured Revolving Line of Credit Agreement  Modification  Agreement
No. 4 dated October 18, 1995 between the  Registrant  and Fleet Bank of New York
incorporated by reference to previously filed Form 10-KSB.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part III (con't.)

                    Exhibits and Reports on Form 8-K (con't.)

4.9 Note and Loan and  Security  Agreement  Modification  Agreement  No. 4 dated
October 18, 1995 between the Registrant and Fleet Bank of New York  incorporated
by reference to previously filed Form 10-KSB.

4.10 Building Loan  Agreement  Modification  Agreement  dated  November 15, 1995
between the Registrant and Fleet Bank of New York  incorporated  by reference to
previously filed Form 10-KSB.

4.11  $2,500,000  Secured  Working  Capital  Revolving Line of Credit Note dated
October 18, 1995 between the Registrant and Fleet Bank of New York  incorporated
by reference to previously filed Form 10-KSB.

4.12 Note and Secured Revolving Line of Credit Agreement  Modification Agreement
No. 5 dated June 17, 1996 between the Registrant and Fleet Bank of New York.

4.13 Note and Loan and Security  Agreement  Modification  Agreement  No. 5 dated
June 17, 1996 between the Registrant and Fleet Bank of New York.

4.14 Note and Secured Revolving Line of Credit Agreement  Modification Agreement
No. 6 dated June 17, 1997 between the Registrant and Fleet Bank of New York.

4.15 Note and Loan and Security  Agreement  Modification  Agreement  No. 6 dated
June 17, 1997 between the Registrant and Fleet Bank of New York.

10.1  Registrant's  1972 Stock Option Plan  incorporated by reference to Exhibit
10.1 to Form 10-K Report for the year ended 12/31/88. (File No. 1-7037)

10.2 Registrant's 1996 Incentive  Compensation Plan incorporated by reference to
Exhibit  10.2 to Form  10-KSB  for the year  ended  12/31/96  by Form S-8  filed
10/31/96. (Registration No.33-15225)

10.3  Registrant's 1996 Incentive  Compensation Plan for Non-Employee  Directors
incorporated  by  reference  to Exhibit  10.3 to Form  10-KSB for the year ended
12/31/96 by Form S-8 filed 10/31/96.
(Registration No. 33-15221)

10.4  Registrant's  Non-Employee  Directors  Stock  Grant Plan  incorporated  by
reference to Exhibit 10.4 to Form 10-KSB for the year ended 12/31/96 by Form S-8
filed 10/31/96. (Registration No. 33-15223)

10.5  Registrant's  Amended  and  Restated  Stock  Option Plan  incorporated  by
reference to Exhibit 10.5 to Form 10-KSB for the year ended 12/31/96 by Form S-8
filed 10/31/96. (Registration No. 33-15227)

10.6 Registrant's  Deferred Compensation Plan for Certain Executive Employees of
Environment  One  Corporation  incorporated by reference to Exhibit 10.6 to Form
10-KSB for the year ended 12/31/96 by Form S-8 filed 10/31/96. (Registration No.
33-15229)
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                Part III (con't.)

                    Exhibits and Reports on Form 8-K (con't.)

10.7 Registrant's  Deferred Compensation Plan for Certain Executive Employees of
Environment  One  Corporation  incorporated by reference to Exhibit 10.7 to Form
10-KSB for the year ended 12/31/97 by Form S-8 filed 12/23/97. (Registration No.
333-43093)

10.8  Confidentiality  Agreement  previously filed March 3, 1998 as Exhibit 3 to
the  Company's  Solicitation/Recommendation  Statement  on Form 14D-9  (File No.
5-35464), and incorporated by reference.

10.9  Employment  Agreement  with Mr.  Ardia  previously  filed March 3, 1998 as
Exhibit 4 to the Company's  Solicitation/Recommendation  Statement on Form 14D-9
(File No. 5-35464), and incorporated by reference.

10.10 Change in Control  Agreement with Mr. Ardia previously filed March 3, 1998
as  Exhibit 5 to the  Company's  Solicitation/Recommendation  Statement  on Form
14D-9 (File No. 5-35464), and incorporated by reference.

10.11 Form of Employment  Agreements with Messrs.  Alexander,  Doin,  Earle, and
Welsh   previously   filed  March  3,  1998  as  Exhibit  6  to  the   Company's
Solicitation/Recommendation  Statement  on Form 14D-9  (File No.  5-35464),  and
incorporated by reference.

23.1 Consent of Independent Auditors, KPMG Peat Marwick LLP.


Reports on Form 8-K

No reports on Form 8-K were filed during the fourth  quarter ended  December 31,
1997.

<PAGE>

                           Environment One Corporation
                                   Form 10-KSB

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  Registrant  has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Environment One Corporation
(Registrant)


/s/Stephen V. Ardia                                  3/27/98
-------------------                                  -------
Stephen V. Ardia                                     Date
Chairman, President and CEO

Pursuant to the requirements of the Securities  Exchange Act of 1934 this report
has been signed by the following persons,  which included the chairman and chief
executive  officer,  chief  financial  officer  and a  majority  of the Board of
Directors on behalf of the  Registrant  and in the  capacities  and on the dates
indicated.


/s/Stephen V. Ardia     3/27/98             /s/Angelo Dounoucos       3/27/98
---------------------------------           ---------------------------------
Stephen V. Ardia           Date             Angelo Dounoucos           Date
Chairman, President and CEO                 Director


/s/Philip W. Welsh      3/27/98             /s/Lars Grenback          3/27/98
---------------------------------           ---------------------------------
Philip W. Welsh            Date             Lars Grenback              Date
Vice President, CFO and Treasurer           Director


/s/Walter W. Aker       3/27/98             /s/Robert G. James        3/27/98
---------------------------------           ---------------------------------
Walter W. Aker             Date             Robert G. James            Date
Director                                    Director


/s/John L. Allen        3/27/98
---------------------------------           ---------------------------------
John L. Allen              Date             Rolf E. Soderstrom        Date
Director                                    Director